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Consumption Taxes and Divisibility of Labor under Incomplete Markets

Author

Listed:
  • Shuhei Takahashi

    (Kyoto University)

  • Tomoyuki Nakajima

    (Kyoto University)

Abstract

We analyze lump-sum transfers financed through consumption taxes in a heterogeneous-agent model with uninsured idiosyncratic wage risk and endogenous labor supply. The model is calibrated to the U.S. economy. We find that consumption inequality and uncertainty decrease with transfers much more substantially under divisible than indivisible labor. Increasing transfers by raising the consumption tax rate from 5% to 35% decreases the consumption Gini by 0.04 under divisible labor, whereas it has almost no effect on the consumption Gini under indivisible labor. The divisibility of labor also affects the relationship among consumption-tax financed transfers, aggregate saving, and the wealth distribution.

Suggested Citation

  • Shuhei Takahashi & Tomoyuki Nakajima, 2016. "Consumption Taxes and Divisibility of Labor under Incomplete Markets," 2016 Meeting Papers 797, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:797
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    Cited by:

    1. Shuhei Takahashi & Ken Yamada, 2017. "The Impact of Taxes and Transfers on Skill Premium," KIER Working Papers 976, Kyoto University, Institute of Economic Research.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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