Advanced Search
MyIDEAS: Login to save this paper or follow this series

Capital Taxation with Entrepreneurial Risk

Contents:

Author Info

  • Vasia Panousi

    (MIT)

Registered author(s):

    Abstract

    This paper studies the effects of capital taxation in a dynamic heterogeneous-agent economy with uninsurable entrepreneurial risk. Although it allows for rich general-equilibrium effects and a stationary distribution of wealth, the model is highly tractable. This permits a clear analysis, not only of the steady state, but also of the entire transitional dynamics following any change in tax policies. Unlike either the complete-markets paradigm or Bewley-type models where idiosyncratic risk impacts only labor income, here it is shown that capital taxation may actually stimulate capital accumulation. This possibility emerges because of the general-equilibrium effects of the insurance aspect of capital taxation. In particular, for the preferred calibrated version of the model, when the tax on capital is 25%, aggregate output is 2.5% higher than what it would have been had the tax rate been zero. Turning to the welfare effects of a reform in capital taxation, it is shown how these effects depend on whether one focuses on the steady state or also takes into account transitional dynamics, as well as how they vary in the cross-section of the population (rich versus poor, entrepreneurs versus non-entrepreneurs).

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.economicdynamics.org/meetpapers/2008/paper_36.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 36.

    as in new window
    Length:
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:red:sed008:36

    Contact details of provider:
    Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
    Fax: 1-314-444-8731
    Email:
    Web page: http://www.EconomicDynamics.org/society.htm
    More information through EDIRC

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. DAVILA, Julio & HONG, Jay H. & KRUSELL, Per & RIOS-RULL, José-Victor, . "Constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2463, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, American Economic Association, vol. 97(3), pages 745-788, June.
    3. Marco Cagetti & Mariacristina De Nardi, 2005. "Entrepreneurship, frictions, and wealth," Working Paper Series, Federal Reserve Bank of Chicago WP-05-09, Federal Reserve Bank of Chicago.
    4. Stefania Albanesi, 2006. "optimal taxation of entrepreneurial capital with private information," 2006 Meeting Papers, Society for Economic Dynamics 310, Society for Economic Dynamics.
    5. Vincenzo Quadrini, 2000. "Entrepreneurship, Saving and Social Mobility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 1-40, January.
    6. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
    7. Marco Cagetti & Mariacristina De Nardi, 2006. "Taxation, entrepreneurship, and wealth," Working Paper Series, Federal Reserve Bank of Chicago WP-06-07, Federal Reserve Bank of Chicago.
    8. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 574-595, June.
    9. Annette Vissing-J�rgensen & Orazio P. Attanasio, 2003. "Stock-Market Participation, Intertemporal Substitution, and Risk-Aversion," American Economic Review, American Economic Association, American Economic Association, vol. 93(2), pages 383-391, May.
    10. George-Marios Angeletos & Vasia Panousi, 2007. "Revisiting the Supply-Side Effects of Government Spending Under Incomplete Markets," NBER Working Papers 13136, National Bureau of Economic Research, Inc.
    11. Ahsan, Syed M., 1976. "Taxation in a two-period temporal model of consumption and portfolio allocation," Journal of Public Economics, Elsevier, Elsevier, vol. 5(3-4), pages 337-352.
    12. repec:hal:journl:halshs-00196183 is not listed on IDEAS
    13. Erosa, Andres & Koreshkova, Tatyana, 2007. "Progressive taxation in a dynastic model of human capital," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(3), pages 667-685, April.
    14. Attanasio, Orazio P & Weber, Guglielmo, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(3), pages 631-49, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Césaire A. Meh & Yaz Terajima, 2009. "Uninsurable Investment Risks and Capital Income Taxation," Working Papers, Bank of Canada 09-3, Bank of Canada.
    2. Vasia Panousi & Dimitris Papanikolaou, 2011. "Investment, idiosyncratic risk, and ownership," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2011-54, Board of Governors of the Federal Reserve System (U.S.).
    3. Florian Scheuer, 2013. "Entrepreneurial Taxation with Endogenous Entry," NBER Working Papers 19235, National Bureau of Economic Research, Inc.
    4. Angeletos, George-Marios & Panousi, Vasia, 2009. "Revisiting the supply side effects of government spending," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(2), pages 137-153, March.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:red:sed008:36. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.