IDEAS home Printed from https://ideas.repec.org/a/ucp/jpolec/doi10.1086-734877.html
   My bibliography  Save this article

Optimal Fiscal Policy with Heterogeneous Agents and Capital: Should We Increase or Decrease Public Debt and Capital Taxes?

Author

Listed:
  • François Le Grand
  • Xavier Ragot

Abstract

We analyze optimal fiscal policy in a heterogeneous-agent model with capital accumulation and aggregate shocks, where the government uses public debt, a capital tax, and a progressive labor tax to finance public spending. We first study a tractable model and show that the steady-state optimal capital tax can be positive if credit constraints are occasionally binding. However, the existence of such an equilibrium depends on the shape of the utility function. We also characterize the optimal dynamic of public debt after a public spending shock. We confirm these findings by solving for optimal policy in a general heterogeneous-agent model.

Suggested Citation

  • François Le Grand & Xavier Ragot, 2025. "Optimal Fiscal Policy with Heterogeneous Agents and Capital: Should We Increase or Decrease Public Debt and Capital Taxes?," Journal of Political Economy, University of Chicago Press, vol. 133(7), pages 2320-2369.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/734877
    DOI: 10.1086/734877
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/734877
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: http://dx.doi.org/10.1086/734877
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/734877?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jpolec:doi:10.1086/734877. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JPE .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.