WP  Global Economy  2014.07.18

Working Paper(14-007E) 「Optimal taxation and debt with uninsurable risks to human capital accumulation」

This is working paper.

 We consider an economy where individuals face uninsurable risks to their human capital accumulation, and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks it is bene cial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these ndings, and show that the bene ts of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion.