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Supply side interventions and redistribution

In this paper we study the welfare impact of alternative tax schemes on labor and capital. We evaluate the e_ect of lowering capital income taxes on the distribution of wealth in a model with heterogeneous agents, restricting our attention to policies with constant tax rates. We calibrate and simulate the economy; we find that lowering capital taxes has two effects: i) it increases effciency in terms of aggregate production, and ii) it redistributes wealth in favor of those agents with a low wage/wealth ratio. We find that the redistributive effect dominates, and that agents with a low wage wealth ratio would experience a large loss in utility if capital income taxes were eliminated.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/115.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 115.

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Date of creation: Jun 1995
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Handle: RePEc:upf:upfgen:115
Contact details of provider: Web page: http://www.econ.upf.edu/

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  1. Albert Marcet & David A. Marshall, 1994. "Solving nonlinear rational expectations models by parameterized expectations: convergence to stationary solutions," Discussion Paper / Institute for Empirical Macroeconomics 91, Federal Reserve Bank of Minneapolis.
  2. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  3. McGrattan, Ellen R & Rogerson, Richard & Wright, Randall, 1997. "An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 267-90, May.
  4. Per Krusell & José-Victor Ríos-Rull, 1994. "What Constitutions Promote Capital Accumulation? A Political-Economy Approach," Wallis Working Papers WP1, University of Rochester - Wallis Institute of Political Economy.
  5. Domeij, David & Heathcote, Jonathan, 2001. "Factor Taxation with Heterogeneous Agents," Working Papers 01-07, Duke University, Department of Economics.
  6. Stuart S. Rosenthal, 1986. "A residence time model of housing markets," Working Paper Series / Economic Activity Section 65, Board of Governors of the Federal Reserve System (U.S.).
  7. Milesi-Ferretti, Gian Maria & Roubini, Nouriel, 1996. "On the Taxation of Human and Physical Capital in Models of Endogenous Growth," CEPR Discussion Papers 1477, C.E.P.R. Discussion Papers.
  8. Paul Klein & JosÈ-VÌctor RÌos-Rull, 2003. "Time-consistent optimal fiscal policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1217-1245, November.
  9. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
  10. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
  11. Cooley, T.F. & Hansen, G.D., 1991. "Tax Distortions in a Neoclassical Monetary Economy," RCER Working Papers 265, University of Rochester - Center for Economic Research (RCER).
  12. Martin Feldstein & James M. Poterba & Louis Dicks-Mireaux, 1981. "The Effective Tax Rate and the Pretax Rate of Return," NBER Working Papers 0740, National Bureau of Economic Research, Inc.
  13. Judd, Kenneth L, 1987. "The Welfare Cost of Factor Taxation in a Perfect-Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 675-709, August.
  14. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  15. S. Rao Aiyagari, 1993. "Explaining financial market facts: the importance of incomplete markets and transaction costs," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 17-31.
  16. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  17. Albert Marcet & Ramon Marimon, 1991. "Communication, commitment and growth," Economics Working Papers 1, Department of Economics and Business, Universitat Pompeu Fabra.
  18. Greenwood, J. & Rogerson, R. & Wright, R., 1993. "Household Production in Real Business Cycle Thoery," RCER Working Papers 347, University of Rochester - Center for Economic Research (RCER).
  19. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January.
  20. Zhu, Xiaodong, 1992. "Optimal fiscal policy in a stochastic growth model," Journal of Economic Theory, Elsevier, vol. 58(2), pages 250-289, December.
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