Results 1  10
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13
Taxes, debts, and redistributions with aggregate shocks ∗
, 2013
"... A planner sets a lump sum transfer and a linear tax on labor income in an economy with incomplete markets, heterogeneous agents, and aggregate shocks. The planner’s concerns about redistribution impart a welfare cost to fluctuating transfers. The distribution of net asset holdings across agents affe ..."
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A planner sets a lump sum transfer and a linear tax on labor income in an economy with incomplete markets, heterogeneous agents, and aggregate shocks. The planner’s concerns about redistribution impart a welfare cost to fluctuating transfers. The distribution of net asset holdings across agents affects optimal allocations, transfers, and tax rates, but the level of government debt does not. Two forces shape longrun outcomes: the planner’s desire to minimize the welfare costs of fluctuating transfers, which calls for a negative correlation between the distribution of net assets and agents ’ skills; and the planner’s desire to use fluctuations in the real interest rate to adjust for missing statecontingent securities. In a model parameterized to match stylized facts about US booms and recessions, distributional concerns mainly determine optimal policies over business cycle frequencies. These features of optimal policy differ markedly from ones that emerge from representative agent Ramsey models like Aiyagari et al. (2002). Key words: Distorting taxes. Transfers. Redistribution. Government debt. Interest rate risk. JEL codes: E62,H21,H63
High Marginal Tax Rates on the Top 1%? Lessons from a Life Cycle Model with Idiosyncratic Income Risk
, 2014
"... expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau ..."
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Cited by 6 (1 self)
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expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau
Managing pessimistic expectations and fiscal policy
, 2011
"... This paper studies the design of optimal fiscal policy when a government that fully trusts the probability model of government expenditures faces a fearful public that forms pessimistic expectations. We identify two forces that shape our results. On the one hand, the government has an incentive to c ..."
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Cited by 5 (2 self)
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This paper studies the design of optimal fiscal policy when a government that fully trusts the probability model of government expenditures faces a fearful public that forms pessimistic expectations. We identify two forces that shape our results. On the one hand, the government has an incentive to concentrate tax distortions on events that it considers unlikely relative to the pessimistic public. On the other hand, the endogeneity of the public’s expectations gives rise to a novel motive for expectation management that aims towards the manipulation of equilibrium prices of government debt in a favorable way. These motives typically act in opposite directions and induce persistence to the optimal allocation and the tax rate.
Managing expectations and fiscal policy
, 2009
"... This paper studies an optimal fiscal policy problem of Lucas and Stokey (1983) but in a situation in which the representative agent’s distrust of the probability model for government expenditures puts model uncertainty premia into historycontingent prices. This gives rise to a motive for expectatio ..."
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This paper studies an optimal fiscal policy problem of Lucas and Stokey (1983) but in a situation in which the representative agent’s distrust of the probability model for government expenditures puts model uncertainty premia into historycontingent prices. This gives rise to a motive for expectation management that is absent within rational expectations and a novel incentive for the planner to smooth the shadow value of the agent’s subjective beliefs in order to manipulate the equilibrium price of government debt. Unlike the Lucas and Stokey (1983) model, the optimal allocation, tax rate, and debt all become history dependent despite complete markets and Markov government expenditures. JEL classification: D80; E62; H21; H63.
The Redistributive Benefits of Progressive Labor and Capital Income Taxation  How large . . .
, 2014
"... In this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a l ..."
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In this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1 % of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations.
Optimal Capital Income Taxation and Redistribution
, 2000
"... This paper studies the effects of agent heterogeneity on optimal capital income tax rates. In a two period model with... ..."
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Cited by 2 (0 self)
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This paper studies the effects of agent heterogeneity on optimal capital income tax rates. In a two period model with...
Paretoimproving optimal capital and labor taxes
, 2008
"... We show a standard model where the optimal tax reform is to cut labor taxes and leave capital taxes very high in the short and medium run. Only in the very long run would capital taxes be zero. Our model is a version of Chamley’s, with heterogeneous agents, without lump sum transfers, an upper bound ..."
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We show a standard model where the optimal tax reform is to cut labor taxes and leave capital taxes very high in the short and medium run. Only in the very long run would capital taxes be zero. Our model is a version of Chamley’s, with heterogeneous agents, without lump sum transfers, an upper bound on capital taxes, and a focus on Pareto improving plans. For our calibration labor taxes should be low for the first ten to twenty years, while capital taxes should be at their maximum. This policy ensures that all agents benefit from the tax reform and that capital grows quickly after when the reform begins. Therefore, the long run optimal tax mix is the opposite from the short and medium run tax mix. The initial labor tax cut is financed by deficits that lead to a positive long run level of government debt, reversing the standard prediction that government accumulates savings in models with optimal capital taxes. If labor supply is somewhat elastic benefits from tax reform are high and they can be shifted entirely to capitalists or workers by varying the length of the transition. With inelastic labor supply there is an increasing part of the equilibrium frontier, this means that the scope for benefitting the workers is limited and the total benefits from reforming taxes are much lower.
Redistribution and Time Consistent Fiscal Policy
, 2003
"... Optimal fiscal policy is usually time inconsistent in the standard representative agent framework. With heterogeneous agents, whether the optimal fiscal policy is time consistent or not depends on the policymaker’s preferences over the joint distribution of assets and welfare. It may be welfare supe ..."
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Optimal fiscal policy is usually time inconsistent in the standard representative agent framework. With heterogeneous agents, whether the optimal fiscal policy is time consistent or not depends on the policymaker’s preferences over the joint distribution of assets and welfare. It may be welfare superior for all agents to appoint a Paretian policymaker who does not necessarily weight each agent’s welfare as society does. In certain cases, it is possible to make the social optimal fiscal policy sustainable in equilibrium even in absence of any reputational mechanism. For the optimal fiscal policy to be consistent, the policymaker should be “conservative”, i.e., it should value negatively transfers from capitalist to worker’s households. However, if society assigns a large enough weight to capitalist’s welfare, then it is welfare superior to appoint a policymaker which is more progressive. 1
Optimal capital income taxation and redistribution
, 2000
"... This paper studies the e ects of agent heterogeneity on optimal capital income tax rates. In a two period model with arbitrarily many heterogeneous agents, we explicitly derive the welfare e ects of taxation depending on the distribution of the agents ' characteristics. In particular, we show t ..."
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This paper studies the e ects of agent heterogeneity on optimal capital income tax rates. In a two period model with arbitrarily many heterogeneous agents, we explicitly derive the welfare e ects of taxation depending on the distribution of the agents ' characteristics. In particular, we show that the sign of the optimal capital income tax rate depends not on the extent of inequality in goods endowments and productivities each by itself, but on a measure of inequality in their joint distribution.
Modeling Labor Supply through Duality and the Slutsky Equation
 International Journal of Economic Sciences and Applied Research
, 2010
"... In the present paper an analysis of the neoclassical optimization model with linear constraints is proposed. By introducing the dual problem it is shown that the solution to the maximization problem is also a solution to the minimization problem. The purely theoretical model proposes a universal eq ..."
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In the present paper an analysis of the neoclassical optimization model with linear constraints is proposed. By introducing the dual problem it is shown that the solution to the maximization problem is also a solution to the minimization problem. The purely theoretical model proposes a universal equation, similar to the Slutsky equation as derived in the consumption theory. Another application is needed, different from the standard applications of the model found in economic literature. This application is based on the study of the change in optimality caused by the taxes on labor. The application focuses on how they impact the optimal decision in the choice between leisure and labor through the application of the classification derived on the basis of the Slutsky equation.