Skip to main content

Welfare-improving Consumption Tax in the Presence of a Wage Tax under Idiosyncratic Returns from Investment and Incomplete Markets

Buy Article:

Price: $25.00 plus tax (Refund Policy)

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.
No References
No Citations
No Supplementary Data
No Article Media
No Metrics

Keywords: incomplete capital market, risk sharing, consumption tax, optimal taxation

Appeared or available online: 11 June 2018

  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
X
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more