Overlapping generations and idiosyncratic risk: Can prices reveal the best policy?

Fiorini, Luciana C.

doi:10.1016/j.jmateco.2008.07.010

Journal of Mathematical Economics

2008

DOI: 10.1016/j.jmateco.2008.07.010

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Overlapping generations and idiosyncratic risk: Can prices reveal the best policy?

Luciana C. Fiorini

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2015

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Taxing capital is a good idea: The role of idiosyncratic risk in an OLG model

Hiraguchi

Shibata

2015

Journal of Economic Dynamics and Control

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a b s t r a c tWe investigate an overlapping generations (OLG) model in which agents who live for two periods receive idiosyncratic productivity shocks when they are old. We show that, around zero tax equilibria, we can always construct a combination of a small capital tax and a lump-sum transfer that are Pareto-improving. As Dávila et al. (Econometrica (2012)) show, a capital reduction in one period raises the welfare level of agents who are old in that period, but lowers that of the young agents, because it reduces their wages. We show that the government can compensate for these wage losses by additionally taxing the old agents, such that their welfare gains remain positive. Our result is unchanged when earnings are uncertain at young age.

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Taxing capital is a good idea: The role of idiosyncratic risk in an OLG model

Hiraguchi

Shibata

2015

Journal of Economic Dynamics and Control

View full text Add to dashboard Cite

show abstract

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Overlapping generations and idiosyncratic risk: Can prices reveal the best policy?

Cited by 1 publication

References 5 publications

Taxing capital is a good idea: The role of idiosyncratic risk in an OLG model

Taxing capital is a good idea: The role of idiosyncratic risk in an OLG model

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