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Optimal Income Taxation with Asset Accumulation

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  • Sebastian Koehne

    (IIES, Stockholm University)

  • Nicola Pavoni

    (Bocconi University)

  • Arpad Abraham

    (European University Institute)

Abstract

Several frictions might prevent (or make undesirable) the full taxation of savings. Due to international capital mobility, for instance, the government may not have perfect control over agent's saving and consumption decisions. We show in this paper that a restricted ability to tax savings has important implications for the taxation of labor income. Specifically, when agents have preferences with convex absolute risk-aversion, we find that optimal marginal tax rates on labor income become more regressive when savings cannot be fully taxed.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1161.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1161

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  1. Conesa, Juan Carlos & Kitao, Sagiri & Krueger, Dirk, 2006. "Taxing capital? Not a bad idea after all!," CFS Working Paper Series 2006/21, Center for Financial Studies (CFS).
  2. Luigi Guiso & Monica Paiella, 2007. "Risk Aversion, Wealth, and Background Risk," Economics Working Papers ECO2007/47, European University Institute.
  3. Ábrahám, Árpád & Koehne, Sebastian & Pavoni, Nicola, 2011. "On the first-order approach in principal-agent models with hidden borrowing and lending," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1331-1361, July.
  4. Peter A. Diamond & Emmanuel Saez, 2011. "The Case for a Progressive Tax: From Basic Research to Policy Recommendations," CESifo Working Paper Series 3548, CESifo Group Munich.
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  6. David Domeij & Jonathan Heathcote, 2004. "On The Distributional Effects Of Reducing Capital Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 523-554, 05.
  7. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
  8. Narayana Kocherlakota, 2004. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Levine's Bibliography 122247000000000729, UCLA Department of Economics.
  9. Fatih Guvenen & Burhanettin Kuruscu & Serdar Ozkan, 2009. "Taxation of human capital and wage inequality: a cross-country analysis," IFS Working Papers W09/23, Institute for Fiscal Studies.
  10. Mikhail Golosov & Narayana R. Kocherlakota & Aleh Tsyvinski, 2001. "Optimal indirect and capital taxation," Working Papers 615, Federal Reserve Bank of Minneapolis.
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  13. Ivan Werning & Emmanuel Farhi, 2010. "Insurance and Taxation over the Life Cycle," 2010 Meeting Papers 909, Society for Economic Dynamics.
  14. Nicola Pavoni & Arphad Abraham, 2004. "First Order Approach for Principal-Agent Models with Hidden Borrowing and Lending: The Two Period Case," 2004 Meeting Papers 572, Society for Economic Dynamics.
  15. Mikhail Golosov & Maxim Troshkin & Aleh Tsyvinski, 2011. "Optimal Dynamic Taxes," NBER Working Papers 17642, National Bureau of Economic Research, Inc.
  16. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
  17. Emmanuel Saez, 2000. "Using Elasticities to Derive Optimal Income Tax Rates," NBER Working Papers 7628, National Bureau of Economic Research, Inc.
  18. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
  19. Sadka, Efraim, 1976. "On Progressive Income Taxation," American Economic Review, American Economic Association, vol. 66(5), pages 931-35, December.
  20. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
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  24. University of Venice & Nicola Pavoni & Piero Gottardi, 2008. "Ramsey Asset Taxation under Asymmetric Information," 2008 Meeting Papers 309, Society for Economic Dynamics.
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Cited by:
  1. Sebastian Koehne & Moritz Kuhn, 2014. "Optimal Taxation in a Habit Formation Economy," CESifo Working Paper Series 4581, CESifo Group Munich.
  2. Campos, Rodolfo G. & Reggio, Iliana, 2014. "Measurement error in imputation procedures," Economics Letters, Elsevier, vol. 122(2), pages 197-202.
  3. Koehne, Sebastian & Kuhn, Moritz, 2013. "Optimal capital taxation for time-nonseparable preferences," MPRA Paper 45203, University Library of Munich, Germany.

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