Capital Taxation: Quantitative Explorations of the Inverse Euler Equation
AbstractEconomies with private information provide a rationale for capital taxation. In this paper we ask what the welfare gains from following this prescription are. We develop a method to answer this question in standard general equilibrium models with idiosyncratic uncertainty and incomplete markets. We find that general equilibrium forces are important and greatly reduce the welfare gains. Once these effects are taken into account, the gains are relatively small in our benchmark calibration. These results do not imply that dynamic aspects of social insurance design are unimportant, but they do suggest that capital taxation may play a modest role.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 120 (2012)
Issue (Month): 3 ()
Pages: 000 - 000
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Web page: http://www.journals.uchicago.edu/JPE/
Other versions of this item:
- Emmanuel Farhi & Ivan Werning, 2007. "Capital Taxation: Quantitative Explorations of the Inverse Euler Equation," Working Papers CAS_RN_2007_3, Laboratory for Macroeconomic Analysis.
- Ivan Werning & Emmanuel Farhi, 2009. "Capital Taxation: Quantitative Explorations of the Inverse Euler Equation," 2009 Meeting Papers 1262, Society for Economic Dynamics.
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- Mark Aguiar & Erik Hurst, 2005. "Consumption versus Expenditure," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 919-948, October.
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- Alexander Karaivanov & Robert M. Townsend, 2013. "Dynamic Financial Constraints: Distinguishing Mechanism Design from Exogenously Incomplete Regimes," NBER Working Papers 19617, National Bureau of Economic Research, Inc.
- Alex Edmans & Xavier Gabaix & Tomasz Sadzik & Yuliy Sannikov, 2009.
"Dynamic Incentive Accounts,"
NBER Working Papers
15324, National Bureau of Economic Research, Inc.
- Yuliy Sannikov & Xavier Gabaix & Tomasz Sadzik & Alex Edmans, 2010. "Dynamic Incentive Accounts," 2010 Meeting Papers 1207, Society for Economic Dynamics.
- Edmans, Alex & Gabaix, Xavier & Sadzik, Tomasz & Sannikov, Yuliy, 2009. "Dynamic Incentive Accounts," CEPR Discussion Papers 7497, C.E.P.R. Discussion Papers.
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