American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Optimal Taxation and Debt with Uninsurable Risks to Human Capital Accumulation
American Economic Review
vol. 105,
no. 11, November 2015
(pp. 3443–70)
Abstract
We consider an economy where individuals face uninsurable risks to their human capital accumulation and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks, it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion. (JEL D52, H21, H24, H25, H63, J24)Citation
Gottardi, Piero, Atsushi Kajii, and Tomoyuki Nakajima. 2015. "Optimal Taxation and Debt with Uninsurable Risks to Human Capital Accumulation." American Economic Review, 105 (11): 3443–70. DOI: 10.1257/aer.20110576Additional Materials
JEL Classification
- D52 Incomplete Markets
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H63 National Debt; Debt Management; Sovereign Debt
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity