On The Distributional Effects Of Reducing Capital Taxes*
Year: 2004
Type: article
Abstract: This article asks whether household heterogeneity and market incompleteness have quantitatively important implications for the welfare effects of tax changes. We compare a representative‐agent economy to an economy in which households face idiosyncratic uninsurable income risk. The income process is consistent with empirical estimates and implies a realistic wealth distribution. We find that capital tax cuts imply large welfare gains in the representative‐agent economy. However, when households are heterogeneous, substantial redistribution during transition means that only a minority will support capital tax cuts, whereas most households can expect large welfare losses.
Source: International Economic Review
Authors: David Domeij, Jonathan Heathcote
Institutions: Stockholm School of Economics, Georgetown University
Language: English
Topic: Economic and Fiscal Studies
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2038600461