Precautionary Savings and Pecuniary Externalities: Analytical Results for Optimal Capital Income Taxation

Alexander Ludwig and Dirk Krueger

No 942, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We develop an analytically tractable overlapping generations model with idiosyncratic earnings risk to study optimal capital income taxes. We derive simple closed form expressions for optimal taxes along the transition towards a new long-run equilibrium. We emphasize the important interplay between a precautionary savings motive and pecuniary externalities which the planner takes into account when determining optimal taxes.

Date: 2016
New Economics Papers: this item is included in nep-dge and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:942

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