Welfare-improving consumption tax in the presence of a wage tax under idiosyncratic returns from investment and incomplete markets Hisahiro Naito
By: Naito, Hisahiro
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Material type: 
ArticlePublisher: 2018Subject(s): CONSUMO | IMPUESTOS | IMPOSICION OPTIMA | RIESGO | MERCADOS FINANCIEROS | INCERTIDUMBREOnline resources: Click here to access online
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FinanzArchiv v. 74, n. 3, September 2018, p. 361-375Summary: In a standard multiperiod model, consumption tax and wage tax are equivalent. I show that when a capital market is incomplete – in the sense that the rates of return from risky investments are idiosyncratic and there is no insurance for such idiosyncratic risk – the introduction of a consumption tax in the presence of a wage tax improves welfare. This holds true even in the presence of optimal or nonoptimal capital income taxes. In the general-equilibrium model, the optimal level of the consumption tax is determined to balance the benefits of the risk-sharing effect and the asset accumulation effect against the costs of postponing government revenue to later periods.
| Item type | Current location | Home library | Call number | Status | Date due | Barcode |
|---|---|---|---|---|---|---|
| Artículos | IEF | IEF | OP 207/2018/3-1 (Browse shelf) | Available | OP 207/2018/3-1 |
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In a standard multiperiod model, consumption tax and wage tax are equivalent. I show that when a capital market is incomplete – in the sense that the rates of return from risky investments are idiosyncratic and there is no insurance for such idiosyncratic risk – the introduction of a consumption tax in the presence of a wage tax improves welfare. This holds true even in the presence of optimal or nonoptimal capital income taxes. In the general-equilibrium model, the optimal level of the consumption tax is determined to balance the benefits of the risk-sharing effect and the asset accumulation effect against the costs of postponing government revenue to later periods.
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