Abraham, Arpad and Koehne, Sebastian and Pavoni, Nicola (2012): Optimal income taxation with asset accumulation.
Download (298kB) | Preview
Several frictions restrict the government's ability to tax assets. First of all, it is very costly to monitor trades on international asset markets. Moreover, agents can resort to non-observable low-return assets such as cash, gold or foreign currencies if taxes on observable assets become too high. This paper shows that limitations in asset observability have important consequences for the taxation of labor income. Using a dynamic moral hazard model of social insurance, we �find that optimal labor income taxes typically become less progressive when assets are imperfectly observed. We evaluate the effect quantitatively in a model calibrated to U.S. data.
|Item Type:||MPRA Paper|
|Original Title:||Optimal income taxation with asset accumulation|
|Keywords:||Optimal Income Taxation; Capital Taxation; Asset Accumulation; Progressivity|
|Subjects:||H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth
|Depositing User:||Sebastian Koehne|
|Date Deposited:||07 May 2012 14:25|
|Last Modified:||20 Mar 2016 21:20|
 Abraham, A., S. Koehne, and N. Pavoni (2011): On the First-Order Approach in Principal-Agent Models with Hidden Borrowing and Lending, Journal of Economic Theory, 146, 1331-1361.
 Avriel, M., W. E. Diewert, S. Schaible, and I. Zang. (1988): Generalized Concavity. Plenum Publishing Corporation, New York.
 Blundell R, Pistaferri L., Preston I. (2008): Consumption inequality and partial insurance. American Economic Revew, 98: 1887-921.
 Chone P., and G. Laroque, (2010): Negative Marginal Tax Rates and Heterogeneity, American Economic Review, 100(5): 2532-47.
 Conesa, J. C., S. Kitao, and D. Krueger (2009): Taxing Capital? Not a Bad Idea After All!, American Economic Review, 99 (1), 25-48.
 Diamond, P. A., and J. A. Mirrlees (1978): A model of social insurance with variable retirement, Journal of Public Economics, 10(3), 295-336.
 Diamond, P. A., and E. Saez (2011): The Case for a Progressive Tax: From Basic Research to Policy Recommendations, Journal of Economic Perspectives, 25(4), 165-190.
 Domeij, D., and M. Floden (2006): The Labor-Supply Elasticity and Borrowing Constraints: Why Estimates are Biased, Review of Economic Dynamics, 9(2), 242-262.
 Domeij, D., and J. Heathcote (2004): On The Distributional Effects Of Reducing Capital Taxes, International Economic Review, 45(2), 523-554.
 Eaton, J., and H. S. Rosen (1980): Optimal Redistributive Taxation and Uncertainty, The Quarterly Journal of Economics, 95(2), 357-64.
 Farhi, E., and I. Werning (2011): Insurance and Taxation over the Life Cycle, mimeo.
 Gollier, C. (2001): The Economics of Risk and Time. MIT Press.
 Golosov, M., N. Kocherlakota, and A. Tsyvinski (2003): Optimal Indirect and Capital Taxation, Review of Economic Studies, 70(3), 569-587.
 Golosov, M., M. Troshkin, and A. Tsyvinski (2011), Optimal Dynamic Taxes, mimeo.
 Golosov, M., and A. Tsyvinski (2007), Optimal Taxation with Endogenous Insurance Markets, The Quarterly Journal of Economics, 122(2), 487-534.
 Gottardi, P., and N. Pavoni (2011): Ramsey Asset Taxation under Asymmetric Information, mimeo, European University Institute.
 Guiso, L., and M. Paiella (2008): Risk Aversion, Wealth, and Background Risk, Journal of the European Economic Association, 6(6), 1109-1150.
 Holmstrom, B. (1979): Moral hazard and observability, Bell Journal of Economics, 10(1), 74-91.
 Kocherlakota, N. R. (2005): Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation, Econometrica, 73(5), 1587-1621.
 Laroque, G. (2011): On Income and Wealth Taxation in A Life-Cycle Model with Extensive Labour Supply, Economic Journal, 121(554), F144-F161.
 Mendoza, E., A. Razin, and L. Tesar (1994): Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption, Journal of Monetary Economics, 34(3), 297-323.
 Mirrlees, J. A. (1971): An Exploration in the Theory of Optimum Income Taxation, Review of Economic Studies, 38(114), 175-208.
 Rogerson, W. (1985), Repeated Moral Hazard, Econometrica, 53: 69-76.
 Sadka, E. (1976): On Progressive Income Taxation, American Economic Review, 66(5), 931-35.
 Saez, E. (2001): Using Elasticities to Derive Optimal Income Tax Rates, Review of Economic Studies, 68(1), 205-29.
 Varian, H. R. (1980): Redistributive taxation as social insurance, Journal of Public Economics, 14(1), 49-68.