Document type
Working paperPublication date
Publication license
Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/43787
Optimal fiscal policy in overlapping generations models
Journal Title
Authors
Director/Tutor
Journal ISSN
Volume Title
Related resource
Abstract
[eng] This paper provides, from a theoretical and quantitative point of view, an explanation of why taxes on capital returns are high (around 35%) by analyzing the optimal fiscal policy in an economy with intergenerational redistribution. For this purpose, the government is modeled explicitly and can choose (and commit to) an optimal tax policy in order to maximize society's welfare. In an infinitely lived economy with heterogeneous agents, the long run optimal capital tax is zero. If heterogeneity is due to the existence of overlapping generations, this result in general is no longer true. I provide sufficient conditions for zero capital and labor taxes, and show that a general class of preferences, commonly used on the macro and public finance literature, violate these conditions. For a version of the model, calibrated to the US economy, the main results are: first, if the government is restricted to a set of instruments, the observed fiscal policy cannot be disregarded as sub optimal and capital taxes are positive and quantitatively relevant. Second, if the government can use age specific taxes for each generation, then the age profile capital tax pattern implies subsidizing asset returns of the younger generations and taxing at higher rates the asset returns of the older ones.
Subject (English)
Citation
Citation
GARRIGA, Carlos (Garriga Calvet). Optimal fiscal policy in overlapping generations models. Documents de treball (Facultat d'Economia i Empresa. Espai de Recerca en Economia). 2001. Vol. E01/066. ISSN 1136-8365. [consulted: 16 of August of 2026]. Available at: https://hdl.handle.net/2445/43787