On The Role Of Progressive Taxation In A Ramsey Model With Heterogeneous Households

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Executive Summary

The aim of this paper is to study the role of progressive tax rules on the allocations of steady state and the stability properties in a Ramsey economy with heterogeneous households and borrowing constraints. Since labor supply is elastic, considering different tax rates on capital and labor incomes is relevant. The steady state analysis allows one to highlight the existence of different types of stationary equilibria. While patient agents always hold capital, impatient ones have or not positive savings, depending on the level of real interest rate. Furthermore, it is not always optimal for all households to have a positive labor supply.

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