Preferences over Capital Income Versus Labor Income Taxation

Empirical papers show that labor income and capital income are differently taxed all over the world. We investigate whether this may correspond to individual preferences. We tackle this question in an overlapping generations general equilibrium model with heterogeneous agents: young versus old and low skilled versus high skilled individuals. Taxes finance unemployment benefits and government consumption. High skilled agents prefer capital income taxes, while young unskilled and old agents prefer labor income taxation.