EconPapers    
Economics at your fingertips  
 

Optimal Ramsey Capital Taxation with Endogenous Government Spending

YiLi Chien and Junsang Lee
Additional contact information
Junsang Lee: Sungkyunkwan University

Review, 2016, vol. 98, issue 4, 327 pages

Abstract: The authors study optimal capital income taxation in heterogeneous agent economies featuring endogenous government spending. Similar to Aiyagari (1995), they find that the long-run optimal capital tax rate should not be zero as long as the competitive equilibrium risk-free interest rate differs from the subjective time discount rate. The authors first argue that this result holds in a wide range of economic environments and is not limited to only the standard incomplete market model with heterogeneous agents. As an example, a decentralized economy with limited commitment is considered. Second, they show that this result critically depends on the assumption of endogenous government spending. Within the same limited commitment environment, they show that the long-run capital taxation becomes zero with exogenous government spending. The authors conclude that the optimal Ramsey taxation in heterogeneous agent economies with exogenous government spending and various frictions is still an open question.

JEL-codes: C61 E22 E62 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://files.stlouisfed.org/files/htdocs/publicat ... ernment-spending.pdf Full text (application/pdf)
http://dx.doi.org/10.20955/r.2016.311-327 http://dx.doi.org/10.20955/r.2016.311-327 (text/html)

Related works:
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:fip:fedlrv:00067

Ordering information: This journal article can be ordered from
https://files.stloui ... htdocs/publications/

DOI: 10.20955/r.2016.311-327

Access Statistics for this article

More articles in Review from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Anna Oates ().

 
Page updated 2019-08-22
Handle: RePEc:fip:fedlrv:00067