We show that the steady-state optimal tax on capital income can be negative, positive, or zero in a neoclassical growth …, and (4) the magnitude of government expenditures. For an empirically plausible set of parameters, we find that the steady …-state optimal capital tax can range between -10 and 22%. …

The standard argument for abstracting from capital accumulation in sticky-price macro models is based on their short …-run focus: over this horizon, capital does not move much. This argument is more problematic in the context of real exchange rate … (RER) dynamics, which are very persistent. In this paper we study RER dynamics in sticky-price models with capital …