Abstract
We design an infinite-horizon heterogeneous-agents and incomplete-markets model to demonstrate analytically that in the absence of any redistributional effects of government policies, optimal capital tax is zero despite capital overaccumulation under precautionary savings and borrowing constraints. Our result indicates that in the long run public debt is a better tool than capital taxation to restore aggregate productive efficiency.
| Original language | English |
|---|---|
| Article number | 109746 |
| Journal | Economics Letters |
| Volume | 200 |
| DOIs | |
| State | Published - Mar 2021 |
Keywords
- Government bonds
- Heterogeneous agents
- Incomplete markets
- Modified golden rule
- Optimal capital taxation
- Ramsey problem
- Wealth distribution