Implementing the Modified Golden Rule? Optimal Ramsey Capital Taxation with Incomplete Markets Revisited

Yunmin Chen, Cheng Chen Yang and YiLi Chien
Additional contact information
Yunmin Chen: Academia Sinica
Cheng Chen Yang: Academia Sinica

No 59, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: What is the prescription of Ramsey capital taxes for the heterogeneous-agent incomplete-market economy in the long run? Aiyagari (1995) addressed the question, showing that a positive capital tax should be imposed to implement the steady-state allocation that satisfies the so-called modified golden rule. In his analysis of the Ramsey problem, a critical assumption implicitly made is the existence of steady-state allocations at the optimum. This paper revisits the issue and finds sharply different results. We demonstrate that the optimal Ramsey allocation may feature no steady state. The key to our results is embedded in the hallmark of incomplete-market models that the risk-free rate is lower than the time discount rate at the steady state in competitive equilibrium.

Date: 2018
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2018/paper_59.pdf (application/pdf)

Related works:
Working Paper: Implementing the Modified Golden Rule? Optimal Ramsey Capital Taxation with Incomplete Markets Revisited (2020)
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:red:sed018:59

Access Statistics for this paper

More papers in 2018 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().