Publication Type

Journal Article

Publication Date

11-2015

Abstract

We consider an economy where individuals face uninsurable risks to their human capital accumulation and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks, it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion.

Keywords

Incomplete markets, Ramsey equilibrium, optimal taxation, optimal public debt

Discipline

Economic Theory | Finance

Research Areas

Economic Theory

Publication

American Economic Review

Volume

105

Issue

11

First Page

3443

Last Page

3470

ISSN

0002-8282

Identifier

10.1257/aer.20110576

Publisher

American Economic Association

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1257/aer.20110576

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