Optimal Fiscal and Monetary Policy
Friday, Jan. 7, 2022 10:00 AM - 12:00 PM (EST)
- Chair: Jennifer La'O, Columbia University
AbstractWhat are the most efficient means of redistribution in an unequal economy? We answer this question by characterizing the optimal shape of non-linear income and wealth taxes in a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and explicitly takes into account the long-lived transition dynamics after policy reforms. We find that a uniform flat tax on capital and labor income combined with a lump-sum transfer is nearly optimal. Though allowing for increasing marginal income and wealth taxes raises welfare, the incremental gains are small due to strong behavioral and general equilibrium effects. This result is robust to changing household preferences, the distribution of ability, the planner's preference for redistribution, as well as to explicitly modeling private business ownership and the ensuing heterogeneity in rates of return.
Micro Risks and Pareto Improving Policies with Low Interest Rates
AbstractWe provide sufficient conditions for the feasibility of a Pareto improving fiscal policy when the risk-free interest rate on government bonds is below the growth rate ($r
- E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit