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Capital taxation with heterogeneous discounting and collateralized borrowing

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  • Biljanovska, Nina
  • Vardoulakis, Alexandros P.

Abstract

We study optimal long-run capital taxation in a closed economy with heterogeneity in agents’ time-discount factors and collateralized borrowing. The collateral constraint distorts intertemporal optimization margins and therefore the tax system serves to alleviate the distortion on top of financing government expenditure. The discrepancy between the private and the social discount factors pushes for a capital subsidy, while the collateral constraint pushes for a capital tax. Consumption smoothing motives result in a strictly positive capital tax in the long run, while when they are muted, the two effects counter-balance and the tax is zero.

Suggested Citation

  • Biljanovska, Nina & Vardoulakis, Alexandros P., 2019. "Capital taxation with heterogeneous discounting and collateralized borrowing," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 97-109.
    • Handle: RePEc:eee:jmacro:v:60:y:2019:i:c:p:97-109
    DOI: 10.1016/j.jmacro.2019.01.009
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    Cited by:

    1. Boar, Corina & Knowles, Matthew, 2024. "Optimal taxation of risky entrepreneurial capital," Journal of Public Economics, Elsevier, vol. 234(C).

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    More about this item

    Keywords

    Ramsey taxation; Tax on capital; Collateral constraint; Heterogeneous discount factors;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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