Optimal Government Policies in Models with Heterogeneous Agents

Radim Bohacek () and Michal Kejak ()

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: In this paper we develop a new methodology for finding optimal government policies in economies with heterogeneous agents. The methodology is solely based on three classes of equilibrium conditions from the government’s and individual agent’s optimization problems: 1) the first order conditions; 2) the stationarity condition on the distribution function; and, 3) the aggregate market clearing conditions. These conditions form a system of functional equations which we solve numerically. The solution takes into account simultaneously the effect of government policy on individual allocations and (from the government’s point of view) optimal distribution of agents in the steady state. This general methodology is applicable to a wide range of optimal government policies in models with heterogeneous agents. We illustrate it on a steady state Ramsey problem with heterogeneous agents, finding the optimal tax schedule. JEL Keywords: Optimal macroeconomic policy, optimal taxation, computational techniques, heterogeneous agents, distribution of wealth and income

JEL-codes: C61 C68 D30 D58 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Optimal government policies in models with heterogeneous agents (2018)
Working Paper: Optimal Government Policies in Models with Heterogeneous Agents (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp272

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