https://macropaperwarehouse.com/authors/francois-le-grand/François Le GrandHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/optimal-fiscal-policy-with-heterogeneous-agents-and-capital-should-we-increase-or-decrease-public-debt-and-capital-taxes/https://macropaperwarehouse.com/papers/optimal-fiscal-policy-with-heterogeneous-agents-and-capital-should-we-increase-or-decrease-public-debt-and-capital-taxes/<p>The Chamley-Judd result (1986) states that the optimal long-run capital income tax rate is zero in representative-agent models. This paper shows that introducing heterogeneous agents — specifically, agents with uninsurable idiosyncratic income risk who use precautionary saving — overturns this result. When agents differ in their wealth and income realizations, a capital income tax serves as a form of insurance that representative-agent models cannot provide. The paper derives a tractable analytical characterization of the optimal capital tax in an Aiyagari-type heterogeneous-agent model and finds that the optimal rate lies in the range of 10–30 percent at the steady state — strictly positive, in direct contradiction to Chamley-Judd. The magnitude of the optimal tax depends on the degree of idiosyncratic risk and the availability of alternative redistribution instruments: when other redistributive tools are limited, the optimal capital tax is higher.</p>https://macropaperwarehouse.com/papers/should-monetary-policy-care-about-redistribution-optimal-monetary-and-fiscal-policy-with-heterogeneous-agents/https://macropaperwarehouse.com/papers/should-monetary-policy-care-about-redistribution-optimal-monetary-and-fiscal-policy-with-heterogeneous-agents/<p><strong>Research Question.</strong> Should monetary policy deviate from price stability to address redistributive concerns in an economy with heterogeneous agents? The paper jointly solves for optimal monetary and fiscal policy under commitment in a Heterogeneous Agent New Keynesian (HANK) environment with incomplete insurance markets for idiosyncratic risk, nominal frictions (Rotemberg price adjustment costs), and aggregate technology shocks.</p> <p><strong>Framework.</strong> The model is a Bewley-style incomplete-markets economy populated by a continuum of agents who differ in their idiosyncratic labor productivity histories. Agents save in two assets — nominal public debt and real capital shares — and face nominal borrowing constraints. Intermediate firms operate under monopolistic competition and face quadratic price adjustment costs. The government has up to five fiscal instruments: linear taxes on real capital income, on nominal asset income, and on labor income; lump-sum transfers; and one-period public nominal debt. Monetary policy controls the path of the nominal interest rate, and thereby inflation.</p>