IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Optimal Capital Income Taxation with Incomplete Markets, Borrowing Constraints, and Constant Discounting

  • Aiyagari, S Rao

For a wide class of infinitely lived agent models, Christophe Chamley (1986) has shown that the optimal capital income tax rate is zero in the long run. Robert E. Lucas (1990) has argued that, for the U.S. economy, there is a significant welfare gain from switching to this policy. This paper shows that, for the Bewley class of models with incomplete insurance markets and borrowing constraints, the optimal tax rate on capital income is positive, even in the long run. Therefore, cutting the capital income tax to zero may well lead to welfare losses. Copyright 1995 by University of Chicago Press.

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://dx.doi.org/10.1086/601445
File Function: full text
Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 103 (1995)
Issue (Month): 6 (December)
Pages: 1158-75

as
in new window

Handle: RePEc:ucp:jpolec:v:103:y:1995:i:6:p:1158-75
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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. anonymous, 1986. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, february.
  2. anonymous, 1986. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, june.
  3. N/A, 1986. "Chapte II. the World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 115(1), pages 27-43, February.
  4. Thompson, Earl A, 1974. "Taxation and National Defense," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 755-82, July/Aug..
  5. N/A, 1979. "Calendar of Economic Events January-March 1979," National Institute Economic Review, National Institute of Economic and Social Research, vol. 88(1), pages 63-64, May.
  6. anonymous, 1986. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, march.
  7. anonymous, 1986. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, january.
  8. N/A, 1979. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 88(1), pages 5-15, May.
  9. N/A, 1986. "Seasonal Patterns in the British Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 117(1), pages 33-42, August.
  10. N/A, 1986. "Chapter II. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 116(1), pages 19-30, May.
  11. anonymous, 1986. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, july.
  12. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  13. N/A, 1979. "Chapter III. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 88(1), pages 26-39, May.
  14. N/A, 1979. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 89(1), pages 11-23, August.
  15. anonymous, 1986. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, june.
  16. N/A, 1986. "Chapter I. the Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 115(1), pages 6-26, February.
  17. N/A, 1979. "Chapter II. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 87(1), pages 25-35, February.
  18. anonymous, 1986. "Quarterly review of the New Zealand economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, february.
  19. anonymous, 1986. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, may.
  20. -, 1986. "Escenarios de la economía mundial hasta 1990," Desarrollo Productivo 4557, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  21. anonymous, 1986. "Quarterly review of the external economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, april.
  22. anonymous, 1986. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, april.
  23. anonymous, 1986. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, august.
  24. anonymous, 1986. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, august.
  25. anonymous, 1986. "Quarterly review of the external economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, january.
  26. anonymous, 1986. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, july.
  27. anonymous, 1986. "Economic updates," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, march.
  28. anonymous, 1986. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, february.
  29. N/A, 1979. "Chapter III. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 87(1), pages 36-56, February.
  30. anonymous, 1986. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, may.
  31. anonymous, 1986. "New Zealand economic chronology 1985," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, january.
  32. Larry E. Jones & Rodolfo E. Manuelli & Peter E. Rossi, 1993. "On the Optimal Taxation of Capital Income," NBER Working Papers 4525, National Bureau of Economic Research, Inc.
  33. N/A, 1979. "Calendar of Economic Events April June 1979," National Institute Economic Review, National Institute of Economic and Social Research, vol. 89(1), pages 56-58, August.
  34. anonymous, 1986. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, april.
  35. N/A, 1979. "Chapter II. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 89(1), pages 24-37, August.
  36. anonymous, 1986. "Quarterly review of the New Zealand economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, may.
  37. N/A, 1979. "Chapter I. The Economy in 1978," National Institute Economic Review, National Institute of Economic and Social Research, vol. 87(1), pages 13-24, February.
  38. anonymous, 1986. "Quarterly review of the New Zealand economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, august.
  39. N/A, 1986. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 117(1), pages 5-19, August.
  40. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February.
  41. anonymous, 1986. "Economic notes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, september.
  42. N/A, 1986. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 116(1), pages 5-18, May.
  43. N/A, 1979. "Chapter I. The Home Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 90(1), pages 7-20, November.
  44. N/A, 1979. "Chapter II. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 90(1), pages 21-34, November.
  45. anonymous, 1986. "Quarterly review of the external economy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, july.
  46. N/A, 1986. "Chapter II. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 118(1), pages 18-29, November.
  47. anonymous, 1986. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, september.
  48. Robert E. Lucas, Jr. & Thomas J. Sargent, 1979. "After Keynesian macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
  49. N/A, 1986. "Chapter II. The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 117(1), pages 20-29, August.
  50. anonymous, 1986. "Economic update," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 49, january.
  51. Prachowny,Martin F. J., 1986. "Money in the Macroeconomy," Cambridge Books, Cambridge University Press, number 9780521315944, Junio.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

When requesting a correction, please mention this item's handle: RePEc:ucp:jpolec:v:103:y:1995:i:6:p:1158-75. 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: (Journals Division)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.