s from Investment and Incomplete Markets - 10.1628/fa-2018-0010 - Mohr Siebeck

Hisahiro Naito

s from Investment and Incomplete Markets

Section: Articles
FinanzArchiv (FA)

Volume 74 () / Issue 3, pp. 361-375 (15)

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In a standard multiperiod model, consumption tax and wage tax are equivalent. I show that when a capital market is incomplete – in the sense that the rates of return from risky investments are idiosyncratic and there is no insurance for such idiosyncratic risk – the introduction of a consumption tax in the presence of a wage tax improves welfare. This holds true even in the presence of optimal or nonoptimal capital income taxes. In the general-equilibrium model, the optimal level of the consumption tax is determined to balance the benefits of the risk-sharing effect and the asset accumulation effect against the costs of postponing government revenue to later periods.

Hisahiro Naito No current data available.