We investigate the welfare implications of changing a proportional capital income tax for a model economy in which heterogeneous households face labor income risk and trade only one asset. Labor taxes are adjusted at the time of the reform to maintain long run budget balance. Our stochastic...

We investigate the welfare implications of eliminating a proportional capital income tax for a model economy in which heterogeneous households face labor income risk and trade only one asset. Labor taxes rises at the time of the reform to maintain long run budget balance. Our stochastic process...

This article asks whether household heterogeneity and market incompleteness have quantitatively important implications for the welfare effects of tax changes. We compare a representative-agent economy to an economy in which households face idiosyncratic uninsurable income risk. The income...

This paper decomposes the rise in cross-sectional earnings inequality in Sweden between 1990 and 2002 into changes in market prices of observable characteristics, changes in the composition of the labor force across demographic groups and industries, and changes in unobservables, and compares...

In an economy with distortionary taxes on labor, can subsidies on day care, financed by an increase in taxes, raise welfare by encouraging women with small children to work? We show, within a heterogeneous-agent life-cycle framework, that the Ramsey optimal policy consists in equalizing...