TY  - UNPD
A1  - Krueger, Dirk
A1  - Ludwig, Alexander
T1  - Optimal taxes on capital in the OLG model with uninsurable idiosyncratic income risk
T2  - SAFE working paper series ; No. 201
N2  - We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1.
T3  - SAFE working paper - 201 
KW  - Idiosyncratic Risk
KW  - Taxation of Capital
KW  - Overlapping Generations
KW  - Precautionary Saving
KW  - Pecuniary Externality
Y1  - 2018
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/45774
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-457745
UR  - https://ssrn.com/abstract=3124792
IS  - February 9, 2018
PB  - SAFE
CY  - Frankfurt am Main
ER  -