The Ramsey steady-state conundrum in heterogeneous-agent economies

YiLi Chien and Yi Wen

Journal of Economic Theory, 2024, vol. 220, issue C

Abstract: This paper makes two fundamental contributions: (i) We prove that the interior Ramsey steady state commonly assumed in the literature may not exist in a standard Aiyagari model—in particular, a steady state with the modified golden rule and a positive capital tax is shown to be feasible but not optimal under conventional parameter values for the intertemporal elasticity of substitution. (ii) We design a modified, analytically tractable version of the standard Aiyagari model to reveal the necessary and/or sufficient conditions for the existence of a Ramsey steady state. We characterize the basic properties of both interior and non-interior Ramsey steady states and show that researchers may draw fundamentally misleading conclusions about optimal fiscal policy (such as the optimal capital tax rate) from their analysis if an interior Ramsey steady state is incorrectly assumed.

Keywords: Ramsey steady state; Optimal capital tax; Optimal government debt; Intertemporal distortions; Consumption front-loading; Heterogeneous agents (search for similar items in EconPapers)
JEL-codes: E13 E62 H21 H30 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022053124000796
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Ramsey Steady-State Conundrum in Heterogeneous-Agent Economies (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:220:y:2024:i:c:s0022053124000796

DOI: 10.1016/j.jet.2024.105873

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().