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On the role of progressive taxation in a Ramsey Model with heterogeneous households

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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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  • Stefano Bosi & Thomas Seegmuller, 2008. "On the role of progressive taxation in a Ramsey Model with heterogeneous households," Documents de travail du Centre d'Economie de la Sorbonne v08051, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:v08051
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    Cited by:

    1. Koyuncu, Murat, 2011. "Can progressive taxation account for cross-country variation in labor supply?," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1474-1488, September.
    2. Nishimura, Kazuo & Nourry, Carine & Seegmuller, Thomas & Venditti, Alain, 2016. "Public Spending As A Source Of Endogenous Business Cycles In A Ramsey Model With Many Agents," Macroeconomic Dynamics, Cambridge University Press, vol. 20(02), pages 504-524, March.
    3. Lise Clain-Chamosset-Yvrard & Thomas Seegmuller, 2013. "The Stabilizing Virtues of Fiscal vs. Monetary Policy on Endogenous Bubble Fluctuations," Working Papers halshs-00854536, HAL.
    4. KONDO Atsumasa, "undated". "The Role of Productivity Growth Rates for Rising Inequality in an Economy with Heterogeneous Agents," ESRI Discussion paper series 326, Economic and Social Research Institute (ESRI).
    5. Bosi, Stefano & Seegmuller, Thomas, 2010. "On the role of progressive taxation in a Ramsey model with heterogeneous households," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 977-996, November.
    6. repec:mje:mjejnl:v:10:y:2014:i:2:p:49-61 is not listed on IDEAS
    7. Mohanad Ismael, 2010. "Progressive income taxes and macroeconomic instability," Documents de recherche 10-13, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    8. Kirill Borissov & Joseph Hanna & Stephane Lambrecht, 2014. "Public Goods, Voting, and Growth," EUSP Department of Economics Working Paper Series Ec-01/14, European University at St. Petersburg, Department of Economics.
    9. Mohanad ISMAEL, "undated". "Social Inequalities and Macroeconomic Instability," EcoMod2009 21500044, EcoMod.

    More about this item

    Keywords

    Progressive taxation; heterogeneous agents; borrowing constraint; endogenous labor supply; steady state allocation; macroeconomic stability.;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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