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Optimal taxation and debt with uninsurable risks to human capital accumulation
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Optimal taxation and debt with uninsurable risks to human capital accumulation

Author

Listed:
  • Piero Gottardi

    (European University)

  • Atsushi Kajii

    (Kyoto University and Singapore Management University)

  • Tomoyuki Nakajima

    (Kyoto University and CIGS)

Abstract

We consider an economy where individuals face uninsurable risks to their human capital accumulation, and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of goverment debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion.

Suggested Citation

  • Piero Gottardi & Atsushi Kajii & Tomoyuki Nakajima, 2014. "Optimal taxation and debt with uninsurable risks to human capital accumulation," KIER Working Papers 897, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:897
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    References listed on IDEAS

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    More about this item

    Keywords

    incomplete markets; Ramsey equilibrium; optimal taxation; optimal public debt.;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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