Creator: Phelan, Christopher Series: Macroeconomics with heterogenous agents, incomplete markets, liquidity constraints, and transaction costs Abstract:
This paper considers the unobserved endowment economy of Green (1987) with a restriction that agents can walk away from insurance contracts at the beginning of any period and contract with another insurer (one-sided commitment). An equilibrium is derived characterized by a unique, market determined insurance contract with the property that agents never want to walk away from it. I show that trade (or insurance) still occurs and that a non-degenerate long-ran distribution of consumption exists.
Subject (JEL): D82 - Information, knowledge, and uncertainty - Asymmetric and private information and D31 - Distribution - Personal income, wealth, and their distributions
Creator: Diaz, Antonia and Luengo-Prado, Maria José, 1972- Series: Advances in dynamic economics Abstract:
In most developed countries, housing receives preferential tax treatment relative to other assets. In particular (i) the housing services provided by owner-occupied housing (generally referred to as imputed rents) are untaxed and (ii) mortgage interest payments reduce taxable income. The potential economic distortions resulting from the unique treatment of housing may be substantial, especially in light of the fact that residential capital accounts for more than half of the assets in the U.S. In particular, this tax treatment distorts the households' portfolio composition, their saving rates and their tenure choice. In this paper we build a general equilibrium model populated by heterogeneous agents subject to idiosyncratic risk. We use this framework to quantitatively assess the macroeconomic and distributional distortions introduced by this preferential tax treatment. We also study the effects of alternative tax schemes which could correct the current system's bias.
Subject (JEL): D58 - General equilibrium and disequilibrium - Computable and other applied general equilibrium models, H20 - Taxation, subsidies and revenue - General, and D31 - Distribution - Personal income, wealth, and their distributions
Creator: Huffman, Gregory W. Series: Finance, fluctuations, and development Abstract:
In this paper a dynamic model is constructed in which labor and capital taxes are determined endogenously through majority voting. The wealth distribution of the economy is shown to influence the voting behavior, and hence the equilibrium levels of the tax rates, which in turn affect the future distribution of wealth. It is shown that the economy exhibits a unique dynamic behavior. Because of the endogenously determined taxes, the asset prices, wealth distribution, and the tax rates can display persistent fluctuations, and even limit cycles, in reaction to exogenous disturbances, or even due to initial conditions. It is also shown that "tax smoothing" does not necessarily appear to naturally arise in such a model, as the economy can display extreme fluctuations in the endogenously determined tax rates.
Keyword: Wealth distribution, Voting behavior, Asset prices, Policy formulation, Dynamic general equilibrium model, and Tax rates Subject (JEL): H25 - Taxation, subsidies and revenue - Business taxes and subsidies, D31 - Distribution - Personal income, wealth, and their distributions, H20 - Taxation, subsidies and revenue - General, and H24 - Taxation, subsidies and revenue - Personal income and other nonbusiness taxes and subsidies