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We evaluate the consequences of a budget neutral reduction in capital taxation
on both aggregate level and the wealth distribution. Based on a theoretical stand-
point, we examine the macroeconomic and distributional effects of a budget neutral
decrease in the capital income tax nanced with an increase in the labour income
tax, in a heterogeneous agents model with incomplete market and stochastic em-
ployment opportunity. While this policy is economy enhancing on the long-run, it
is the contrary on the short-run. The distributional effects are different along the
transition: while the reform is a progressive redistribution in the long-run towards
the poorest, it provokes a widening of wealth concentration and inequality on im-
pact, when the wealth of the rst and second quintiles decreases and the richest
benet of the drop in capital taxation.
