Creator: Aiyagari, S. Rao and Peled, Dan Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 503 Abstract:
It is often argued that with a positively skewed income distribution (median less than mean) a majority voting over proportional tax rates would result in higher tax rates than those that maximize average welfare, and will accordingly reduce aggregate savings. We reexamine this view in a capital accumulation model, in which distorting redistributive taxes provide insurance against idiosyncratic shocks, and income distributions evolve endogenously. We find small differences of either sign between the tax rates set by a majority voting and a utilitarian government, for reasonable parametric specifications. We show how these differences reflect a greater responsiveness of a utilitarian government to the average need for the insurance provided by the tax-redistribution scheme. These conclusions remain true despite the fact that the model simulations produce positively skewed distributions of total income across agents.
Keyword: Votes, Taxes, and Income distribution Subject (JEL): E62 - Fiscal Policy and D72 - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
Creator: Aiyagari, S. Rao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 424 Keyword: Deficit, Tax policy, Federal government, Taxation, Tax, Tax rates, Taxes , and Budget management Subject (JEL): H21 - Taxation and Subsidies: Efficiency; Optimal Taxation and H62 - National Deficit; Surplus
Creator: Aiyagari, S. Rao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 319 Abstract:
We consider the existence of deterministically cycling steady state equilibria in a class of stationary overlapping generations models with sufficiently long (but, finite) lived agents. Preferences are of the discounted sum of utilities type with a fixed discount rate. Utility functions with large coefficients of relative risk aversion which generate strong income effects (relative to substitution effects) and backward bending offer curves are permitted. Lifetime endowment patterns are quite arbitrary. We show that if agents have a positive discount rate, then as agents1 lifespans get large, short period non-monetary cycles will disappear. Further, constant monetary steady states do not exist and therefore, neither do stationary monetary cycles of any period. We then consider the case where agents have a negative discount rate and show that there are robust examples in which constant monetary steady states as well as stationary monetary cycles (with undiminished amplitude) can occur no matter how long agents live.
Keyword: Longevity, Business cycles, Intertemporal choice, and Monetary theory Subject (JEL): D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making and N10 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: General, International, or Comparative