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Optimal Government Policies in Models with Heterogeneous Agents

Author

Listed:
  • Radim Bohacek

    (CERGE-EI)

  • Michal Kejak

    (CERGE-EI)

Abstract

We develop a new methodology for finding optimal government policies in economies with heterogeneous agents. The methodology is solely based on three classes of equilibrium conditions from the government's and individual agent's optimization problems: 1) the first order conditions; 2) the stationarity condition on the distribution function; and, 3) the aggregate market clearing conditions. The solution takes into account simultaneously the effect of government policy on individual allocations and (from the government's point of view) optimal distribution of agents in the steady state. We illustrate it on a steady state Ramsey problem with heterogeneous agents, finding the optimal tax schedule.

Suggested Citation

  • Radim Bohacek & Michal Kejak, 2007. "Optimal Government Policies in Models with Heterogeneous Agents," 2007 Meeting Papers 651, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:651
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    Cited by:

    1. is not listed on IDEAS
    2. Robin Boadway & Kevin Spiritus, 2025. "Optimal taxation of normal and excess returns to risky assets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 127(2), pages 366-389, April.
    3. Kitao, Sagiri, 2010. "Labor-dependent capital income taxation," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 959-974, November.
    4. Tomoyuki Nakajima & Shuhei Takahashi, 2020. "On the Non-Existence of a Zero-Tax Steady State with Incomplete Asset Markets," KIER Working Papers 1025, Kyoto University, Institute of Economic Research.
    5. Sagiri Kitao, 2010. "Labor-dependent capital income taxation that encourages work and saving," Staff Reports 435, Federal Reserve Bank of New York.
    6. Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2009. "Taxing Capital? Not a Bad Idea after All!," American Economic Review, American Economic Association, vol. 99(1), pages 25-48, March.
    7. Xiaoliang Yang & Patrick Minford & David Meenagh, 2021. "Inequality and Economic Growth in the UK," Open Economies Review, Springer, vol. 32(1), pages 37-69, February.

    More about this item

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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