Capital Taxation with Entrepreneurial Risk

Capital Taxation with Entrepreneurial Risk

This paper studies the effects of capital taxation in a dynamic heterogeneous-agent economy with uninsurable entrepreneurial risk. Although it allows for rich general-equilibrium effects and a stationary distribution of wealth, the model is highly tractable. This permits a clear analysis, not only of the steady state, but also of the entire transitional dynamics following any change in tax poli...

Optimal Capital Taxation with Idiosyncratic Investment Risk

We examine the optimal taxation of capital in a general-equilibrium heterogeneousagent economy with uninsurable idiosyncratic investment or capital-income risk. Our framework combines elements from the Ramsey and the Mirrlees traditions, as we consider a linear tax but also introduce lump-sum transfers. The tractability of our model allows for an analytic characterization of the long run, as we...

Entrepreneurial Taxation with Endogenous Entry

This paper analyzes Pareto optimal non-linear taxation of profits and labor income in a private information economy with endogenous firm formation. Individuals differ in both their skill and their cost of setting up a firm, and choose between becoming workers and entrepreneurs. I show that a tax system in which entrepreneurial profits and labor income must be subject to the same non-linear tax ...

Taxation and Capital Spending

Optimal Capital Income Taxation with Endogenous Human Capital Formation∗

This paper analyzes optimal linear taxes on capital and labor incomes in a life-cycle model of human capital investment, financial savings, and labor supply with heterogenous individuals. A dual income tax with positive marginal tax rates on not only labor but also capital income is optimal. The key function of the tax on capital income is to reduce labor tax distortions on human capital accumu...