Fiscal Policy when Individuals Differ with Regard to Altruism and Labor Supply

Abstract

This paper studies the incidence of tax-transfer policy in a growth model wherein individuals differ according to their level of intergenerational altruism and have an endogenous labor supply. The main result is that public debt is neutral at the macro level but redistributes resources from nonaltruists to altruists. Capital income taxation can hurt the nonaltruists who do not have any wealth more than it hurts the altruists who own all of it. Whether or not the altruists supply a positive amount of labor makes a big difference as to the incidence of alternative tax transfer policies.

On the role of progressive taxation in a Ramsey model with heterogeneous households

“…19 This type of equilibria is of interest because the population endogenously splits in two classes, (patient) capitalists who hold the whole capital stock and do not supply labor, and (impatient) workers who do not save and are the only ones who supply labor (see also Bosi and Seegmuller (2007)). This also provides some foundations of the models developed by Mankiw (2000), Michel and Pestieau (1999) and Woodford (1989). 20 We start by analyzing how the population sizes of patient/impatient agents in total population aect the steady state allocation.…”

“…14 It is also interesting to notice that endogenous labor supply has an important impact on the uniqueness versus multiplicity. Indeed, in the case of inelastic labor supply (σ 2i = 0), σ Pj only depends on ρ 2i , 15 i.e. on capital taxation.…”

“…For the sake of simplicity, we focus on a steady state where only patient consumers hold capital and only impatient supply labor. 5 Such an equilibrium is of interest because of the endogenous split of population in two classes, capitalists and workers (see also Bosi and Seegmuller (2007)), and provides a foundation of models with social segmentation such as Mankiw (2000), Michel and Pestieau (1999) or Woodford (1989). 6 Among others, we show that the ratio of sizes patient/impatient agents aects the capital-labor ratio because of the progressivity in capital taxation.…”

Public Spending as a Source of Endogenous Business Cycles in a Ramsey Model With Many Agents

“…Mankiw (2000), Michel and Pestieau (1999) and Woodford (1986). In the following we focus exclusively on this type of steady state.…”

The Tax Treatment of Intergenerational Wealth Transfers

“…If they have to vote they will vote for such a tax without being concerned by the fate of their descendance. The political economy of 28 See Michel and Pestieau (1998, 1999, 2005. 29 See also Stiglitz (1977).…”