Infrastructure and Inequality: Insights From Incorporating Key Economic Facts About Household Heterogeneity

Klenert, David; Mattauch, Linus; Edenhofer, Ottmar; Lessmann, Kai

doi:10.1017/s1365100516000432

Cited by 15 publications

(15 citation statements)

References 38 publications

(64 reference statements)

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“…The results of this article also hold for more general production and utility functions (resulting in non‐constant savings rate) and can be extended to other forms of generating fiscal revenue: labor taxation under non‐fixed labor supply and consumption taxation. Our companion article confirms numerically that the results of this study hold under these more general assumptions (Klenert et al , ).…”

Section: Discussionsupporting

confidence: 88%

“…A capital tax is levied by the government to finance productive public investment. The effect of other revenue sources, such as labor or consumption taxation, and the comparison with capital taxation is treated in our companion paper, Klenert et al (2016), that extends the present analysis to less stylized functional forms. Our main point in the present article is to prove that capital taxation can both reduce inequality and be Pareto-improving.…”

Section: Introductionmentioning

confidence: 85%

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Distributional Effects of Public Investment when Wealth and Classes are Back

et al. 2016

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In developed economies, wealth inequality is high, while public capital is underprovided. Here, we study the impact of heterogeneity in saving behavior and income sources on the distributional effects of public investment. A capital tax is levied to finance productive public capital in an economy with two types of households: high income households who save dynastically and middle income households who save for retirement. We find that inequality is reduced the higher the capital tax rate is and that low tax rates are Pareto‐improving. There is no clear‐cut trade‐off between efficiency and equality: middle income households’ consumption is maximal at a capital tax rate that is higher than the rate which maximizes high income households’ consumption.

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Section: Discussionsupporting

confidence: 88%

Section: Introductionmentioning

confidence: 85%

Distributional Effects of Public Investment when Wealth and Classes are Back

et al. 2016

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“…Glomm and Ravikumar (1994) find that income tax-financed public spending is neutral on the income distribution. Mattauch et al (2014) and Klenert et al (2014) show in a heterogeneous-agent model that Pareto-improving public spending can have a distribution-neutral effect when it is financed by a tax on consumption, and even an inequality-reducing effect when financed by a tax on capital. In their model, agents are distinguished by their saving motive, their time preference and their source of income.…”

Section: Reducing Inequality While Promoting Efficiency Via Public Spmentioning

confidence: 99%

A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare

et al. 2015

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Climate change economics mostly neglects sizeable interactions of carbon pricing with other fiscal policy instruments. Conversely, public finance typically overlooks the effects of future decarbonization efforts when devising instruments for the major goals of fiscal policy. We argue that such a compartmentalisation is undesirable: policy design taking into account such interdependencies may enhance welfare and change the distribution of mitigation costs within and across generations. This claim is substantiated by analyzing six interactions between climate policy and public finance that are insufficiently explored in current research: (i) reduced tax competition in an open economy, (ii) portfolio effects induced through climate policy, (iii) restructuring public spending, (iv) revenue recycling for productive public investment, (v) greater intragenerational equity through appropriate revenue recycling and (vi) intergenerational Pareto-improvements through intertemporal transfers. We thereby structure the hitherto identified interactions between climate change mitigation and public finance and show that jointly considering carbon pricing and fiscal policy is legitimate and mandatory for sound policy appraisal.JEL classification: B41, H21, H23, H54, H60, Q54

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“…This type of model was originally introduced by Pasinetti (1962) and has been taken up by Samuelson and Modigliani (1966), Stiglitz (1967Stiglitz ( , 1969 and Judd (1985). More recently Baranzini (1991), Klenert et al (2018), Mattauch et al (2016), Michl (2009) and Stiglitz (2015bStiglitz ( , 2016bStiglitz ( , 2018a have analyzed related models in which workers also save in a life-cycle fashion, thus accounting for the importance of retirement savings. In particular, Mattauch et al (2016) and Stiglitz (2017) proved that public investment financed through capital taxes is Pareto-improving for low tax rates and that workers prefer higher capital tax rates than capitalists.…”

Section: Introductionmentioning

confidence: 99%

Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment

Mattauch¹,

Klenert²,

Stiglitz³

et al. 2018

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Wealth inequality is rising in rich countries. Capital taxation used simply to finance redistribution may not be able to counteract this trend, but can increased public investment financed by higher capital taxes? We examine how such a policy affects the distribution of wealth in a setting with distinct wealth groups: dynastic savers and life-cycle savers. Our main finding is that public investment financed through capital taxes always decreases wealth inequality when the elasticity of substitution between capital and labor is moderately high. Indeed, for all elasticities of substitution greater than a threshold value, at high enough capital tax rates, dynastic savers disappear in the long run. Below these rates, both types of households co-exist in equilibrium with life-cycle savers gaining from the higher capital tax rates. These results are robust with respect to the different roles of public investment in production. We calibrate our model to OECD economies and find the threshold elasticity to be 0.82.

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Infrastructure and Inequality: Insights From Incorporating Key Economic Facts About Household Heterogeneity

Cited by 15 publications

References 38 publications

Distributional Effects of Public Investment when Wealth and Classes are Back

Distributional Effects of Public Investment when Wealth and Classes are Back

A Public Finance Perspective on Climate Policy: Six Interactions That May Enhance Welfare

Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment

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