Effects of Tax Policy in a Life-Cycle Model with Asset Illiquidity

Journal of Economic Research, Vol. 20(3), p. 257-279, 2015

24 Pages Posted: 8 Dec 2016  

Zhen Cui

California State University, Los Angeles

Date Written: August 10, 2015

Abstract

This study proposes a general equilibrium life-cycle model where households make labor supply decisions and smooth consumption using one asset. This asset involves a stochastic adjustment cost. A recession arises when the tax revenue generated from a tax hike is spent as government expenditures. A prolonged expansion occurs when the revenue is distributed as transfers, especially to older and lower income households with higher savings. The tax hike invariably leads to recession when the adjustment cost is absent. Thus, how tax revenue is spent can significantly affect the aggregate economy once asset illiquidity is considered.

Keywords: Tax Policy, Life-Cycle Model, Asset Illiquidity, General Equilibrium

JEL Classification: E62, E21, E13

Suggested Citation

Cui, Zhen, Effects of Tax Policy in a Life-Cycle Model with Asset Illiquidity (August 10, 2015). Journal of Economic Research, Vol. 20(3), p. 257-279, 2015. Available at SSRN: https://ssrn.com/abstract=2881569 or http://dx.doi.org/10.2139/ssrn.2881569

Zhen Cui (Contact Author)

California State University, Los Angeles ( email )

5151 State University Dr
Los Angeles, CA 90032
United States

Paper statistics

Downloads
12
Abstract Views
154