Publication Type
Journal Article
Version
publishedVersion
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
Citation
GOTTARDI, Piero; KAJII, Atsushi; and NAKAJIMA, Tomoyuki.
Optimal Taxation and Debt with Uninsurable Risks to Human Capital Accumulation. (2015). American Economic Review. 105, (11), 3443-3470.
Available at: https://ink.library.smu.edu.sg/soe_research/1799
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1257/aer.20110576