Optimal Taxation and Debt with Uninsurable Risks to Human Capital Accumulation

39 Pages Posted: 4 Apr 2015

See all articles by Piero Gottardi

Piero Gottardi

European University Institute - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia; CESifo (Center for Economic Studies and Ifo Institute)

Atsushi Kajii

Institute of Economic Research, Kyoto University; Singapore Management University

Tomoyuki Nakajima

University of Tokyo

Date Written: November 2014

Abstract

We consider an economy where individuals face uninsurable risks to their human capital accumulation and study the problem of determining the optimal level of linear taxes on capital and labor income together with the optimal path of the debt level. We show both analytically and numerically that in the presence of such risks it is beneficial to tax both labor and capital income and to have positive government debt.

Keywords: incomplete markets, Ramsey equilibrium, optimal taxation, optimal public debt

JEL Classification: D52, D60, D90, E20, E62, H21, O40

Suggested Citation

Gottardi, Piero and Kajii, Atsushi and Nakajima, Tomoyuki, Optimal Taxation and Debt with Uninsurable Risks to Human Capital Accumulation (November 2014). FRB Atlanta Working Paper No. 2014-24, Available at SSRN: https://ssrn.com/abstract=2580485 or http://dx.doi.org/10.2139/ssrn.2580485

Piero Gottardi

European University Institute - Department of Economics ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy
+39 041 257 4192 (Phone)
+39 041 257 4176 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Atsushi Kajii

Institute of Economic Research, Kyoto University ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto 606-8501
JAPAN

HOME PAGE: http://www.kier.kyoto-u.ac.jp/~kajii/

Singapore Management University ( email )

School of Economics
90 Stamford Road
Singapore, 178903
Singapore

Tomoyuki Nakajima (Contact Author)

University of Tokyo ( email )

Yayoi 1-1-1
Bunkyo-ku
Tokyo, Tokyo 113-8657
Japan

HOME PAGE: http://https://sites.google.com/view/tomoyukinakajima/home

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