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On the Role of Progressive Taxation in a Ramsey Model with Heterogeneous Households

  • Stefano Bosi

    ()

    (EQUIPPE - Economie Quantitative, Intégration, Politiques Publiques et Econométrie - PRES Université Lille Nord de France - Université de Lille, Sciences Humaines et Sociales - Université de Lille, Sciences et Technologies - Université de Lille, Droit et Santé, EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)

  • Thomas Seegmuller

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

The aim of this paper is to study the role of progressive tax rules on the allocations of steady state and the stability properties in a Ramsey economy with heterogeneous households and borrowing constraints. Since labor supply in elastic, considering different tax rates on capital and labor incomes is relevant. The steady state analysis allows us to highlight the existence of different types of stationary equilibria. While patient agents always hold capital, impatient ones have or not positive savings, depending on the leval of real interest rate. Furthermore, it is not always optimal for all households to have a positive labor supply. Studying the comparative statics and local dynamics, we focus on the steady state with a segmented population : patient households own the whole stock of capital, while the impatient ones are workers. Varying the population sizes and the tax rates, we underline the crucial role of fiscal progressivity and endogenous labor. Moreover, in contrast to many contributions, we prove that progressive tax rules can promote expectation-driven fluctuations and endogenous cycles which means that progressivity can be inopportune to stabilize macroeconomic volatility.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00331299.

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Date of creation: Jun 2008
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Publication status: Published in Documents de travail du Centre d'Economie de la Sorbonne 2008.51 - ISSN : 1955-611X. 2008
Handle: RePEc:hal:cesptp:halshs-00331299
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00331299
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