We investigate the welfare implications of eliminating a proportional capital income tax for a model economy in which heterogeneous households face labor income risk and trade only one asset. Labor taxes rises at the time of the reform to maintain long run budget balance. Our stochastic process...

We investigate the welfare implications of changing the mix between capital and labor taxes for a model economy in which heterogeneous households face uninsurable labor income risk. The stochastic process for labor earnings we construct is consistent with empirical estimates of earnings risk,...

We document a clear increase in Swedish earnings inequality in the early 1990s, and that much of this increase was generated by movements in and out of the labor market. Inequality in disposable income and earnings net of taxes and transfers also increased, but much less than the increased...

In an economy with distortionary taxes on labor, can subsidies on day care, financed by an increase in taxes, raise welfare by encouraging women with small children to work? We show, within a heterogeneous-agent life-cycle framework, that the Ramsey optimal policy consists in equalizing...

The intertemporal labor-supply elasticity is often a central element in macroeconomic analysis. We argue that assumptions underlying previous econometric estimates of the labor supply elasticity are inconsistent with incomplete-markets economies. In particular, if the econometrician ignores...

We use the neoclassical growth framework to model international capital flows in a world with exogenous demographic change. We compare model implications and actual current account data and find that the model explains a small but significant fraction of capital flows between OECD countries, in...

In this paper I study the nature of optimal factor income taxation in a neoclassical growth model where search frictions on the labor marker generate unemployment. I show that the introduction of search frictions changes the Chamley-Judd result of zero capital taxation as follows: if the...

The rise in cross-sectional earnings inequality in Sweden between 1990 and 2002 is decomposed into changes in market prices of observable characteristics, changes in the composition of the labor force across demographic groups and industries, and changes in unobservables. The Swedish experience...

We use the neoclassical growth framework to model international capital flows in a world with exogenous demographic change. We compare model implications and actual current account data and find that the model explains a small but significant fraction of capital flows between OECD countries, in...