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Optimal Taxation and Debt with Uninsurable Risks to Human Capital Accumulation

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  • Piero Gottardi
  • Atsushi Kajii
  • Tomoyuki Nakajima

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. (JEL D52, H21, H24, H25, H63, J24)

Suggested Citation

  • Piero Gottardi & Atsushi Kajii & Tomoyuki Nakajima, 2015. "Optimal Taxation and Debt with Uninsurable Risks to Human Capital Accumulation," American Economic Review, American Economic Association, vol. 105(11), pages 3443-3470, November.
    • Handle: RePEc:aea:aecrev:v:105:y:2015:i:11:p:3443-70
    Note: DOI: 10.1257/aer.20110576
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    Citations

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    Cited by:

    1. Braun, R. Anton & Nakajima, Tomoyuki, 2016. "Uninsured risk, stagnation, and fiscal policy," FRB Atlanta Working Paper 2016-4, Federal Reserve Bank of Atlanta, revised 01 Mar 2016.
    2. Krueger, Dirk & Ludwig, Alexander, 2018. "Optimal taxes on capital in the OLG model with uninsurable idiosyncratic income risk," SAFE Working Paper Series 201, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    3. repec:eee:hapoch:v1_713 is not listed on IDEAS
    4. Keshab Bhattarai, 2016. "Growth and Income Distributions in Four EU Economies," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(3), pages 263-277, August.
    5. Krueger, Dirk & Ludwig, Alexander, 2018. "Optimal taxes on capital in the OLG model with uninsurable idiosyncratic income risk," ZEW Discussion Papers 18-014, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. Krebs, Tom & Scheffel, Martin, 2016. "Quantifizierung der gesamtwirtschaftlichen Effekte ausgewählter Reformvorschläge der Studie "Reforms, Investment and Growth: An Agenda for France, Germany and Europe"," Working Papers 16-04, University of Mannheim, Department of Economics.
    7. Tom Krebs & Moritz Kuhn & Mark Wright, 2017. "Under-Insurance in Human Capital Models with Limited Enforcement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 121-150, April.

    More about this item

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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