In this paper we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks, where households also differ permanently with respect to their ability to generate income. The welfare criterion we employ is...

We characterize optimal redistribution in a dynastic family model with human capital. We show how a government can improve the trade-off between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital...

This Paper re-examines the impact of capital income taxes on the incentive to invest in the presence of risk. Specifically, it challenges a well-known claim in the literature that such a tax can leave incentives ‘basically unaffected’ because the tax liability is offset by a reduction in the...

This paper proposes a methodology for computing effective average tax rates using national accounts and revenue statistics, and applies it to construct time-series of tax rates for the seven largest industrialized countries. The resulting tax rates are consistent with available estimates of...

We analyze optimal taxation in an economy with monopsonistic labour markets. The individuals, whose only decisions are whether to work, or not, have heterogeneous productivities and opportunity costs of work. Given its preferences for redistribution, the government, which does not observe the...

This Paper analyses the optimal timing of taxes on capital income. We show that the celebrated result that taxes should front-loaded with an initially high tax followed by a discrete jump to the steady state is knife-edge, hinging on capital having a constant depreciation rate. An empirically...

Economists traditionally tackle normative problems by computing optimal policy, ie the one that maximizes a social welfare function. In practice, however, a succession of marginal changes to a limited number of policy instruments are implemented, until no further improvement is feasible. I call...