Our objective is to investigate, how the combination of habit formation with endogenous capital utilization decisions affects the process of economic growth. We find that in the presence of positive productivity growth, habit formation in consumption reduces the rate of capital utilization while increasing the long run stock of capital. We show in the Chamley–Judd result of zero income capital ...

Jones, Department of Managerial Economics and Decision Sciences, Kellogg School, Northwestern University, Evanston, IL, 60208 (email: [email protected]), Manuelli, Department of Economics, University of Wisconsin-Madison, Madison, WI, 53705 (email: [email protected]). We would like to thank NSF for financial support and the Universidad Torcuato DiTella for their hospitality while some of the idea...

Fundamental to any theory of capital taxation is a description of individual savings behavior. Successful descriptions of savings behavior have often resorted to the habit formation hypothesis. This paper studies the effect of habit formation on optimal capital taxes in a dynamic Mirrleesian model. We make three distinct contributions. First, we decompose intertemporal wedges (implicit capital ...

This paper studies optimal dynamic tax policy under the threat of political reform. A policy will be reformed ex post if a large enough political coalition supports reform; thus, sustainable policies are those that will continue to attract enough political support in the future. We find that optimal marginal capital taxes are either progressive or U-shaped, so that savings are subsidized for th...

This paper describes the positive effect that corporate income tax has on capital formation in the presence of liquidity constraints and uninsurable risk. The author uses a dynamic generalequilibrium model in which individuals choose whether to become entrepreneurs or workers. Workers save by holding corporate equity and therefore are subject to double taxation, as the return on their savings i...

BACKGROUND The distribution of cigarette prices has rarely been studied and compared under different tax structures. Descriptive evidence on price distributions by countries can shed light on opportunities for tax avoidance and brand switching under different tobacco tax structures, which could impact the effectiveness of increased taxation in reducing smoking. OBJECTIVE This paper aims to de...

The Taxpayer Relief Act of 1997 (TRA97) significantly changed the tax treatment of housing capital gains in the United States. Before 1997, homeowners were subject to capital gains taxation when they sold their houses unless they purchased replacement homes of equal or greater value. Since 1997, homeowners can exclude capital gains of $500,000 (or $250,000 for single filers) when they sell thei...

In a matching model of firm formation with moral hazard, we characterize the equilibrium for economies with scarcity of capital and study the effects of redistributive taxation. We give necessary and sufficient conditions determining the equilibrium matching patterns, payoffs and interest rate. These depend only on aggregate wealth and the median wealth relative to the active population, compar...

September 2002 Abstract This paper, in a quantitative way, studies the macroeconomic and welfare effects of introducing a progressive expenditure tax in a situation with the aging of the Japanese population. The paper simulates capital accumulation and social welfare by taking account of the general equilibrium effects of intragenerational inequality in order to predict the future aged society....

This paper addresses a key but neglected task in the theory of international taxation, lent increased urgency by growing awareness of the potential gains from tax coordination: the characterization of Pareto-efficient international tax regimes. It shows that the Diamond-Mirrlees theorem on the desirability of production efficiency, which underlies the key tenets of policy advice in internationa...