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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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    3. 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.
    4. 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.
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    6. Robin Boadway & Kevin Spiritus, 2021. "Optimal Taxation of Normal and Excess Returns to Risky Assets," Tinbergen Institute Discussion Papers 21-025/VI, Tinbergen Institute.
    7. Kitao, Sagiri, 2010. "Labor-dependent capital income taxation," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 959-974, November.
    8. Sagiri Kitao, 2010. "Labor-dependent Capital Income Taxation That Encourages Work and Saving," 2010 Meeting Papers 271, Society for Economic Dynamics.

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    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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