{"product_id":"international-finance-discussion-papers-david-m-arseneau-9781288727780","title":"International Finance Discussion Papers: Ramsey Meets Hosios: The Optimal Capital Tax and Labor Market Efficiency","description":"Heterogeneity between unemployed and employed individuals matters for optimal fiscal policy. This paper considers the consequences of welfare heterogeneity between these two groups for the determination of optimal capital and labor income taxes in a model with matching frictions in the labor market. In line with a recent finding in the literature, we find that the optimal capital tax is typically non-zero because it is used to indirectly mitigate an externality along the extensive labor margin that arises from search and matching frictions. However, the consideration of heterogeneity makes our result differ in an important way: even for a well-known parameter configuration (the Hosios condition) that typically eliminates this externality, we show that the optimal capital income tax is still non-zero. We also show that labor adjustment along the intensive margin has an important effect on efficiency at the extensive margin, and hence on the optimal capital tax, independent of welfare heterogeneity. Taken together, our results show that these two empirically-relevant features of the labor market can have a quantitatively-important effect on the optimal capital tax.\u003cbr\u003e\u003cbr\u003e\u003cb\u003eAuthor:\u003c\/b\u003e David M. Arseneau,Sanjay K. Chugh\u003cbr\u003e\u003cb\u003eISBN-10:\u003c\/b\u003e 128872778X\u003cbr\u003e\u003cb\u003eISBN-13:\u003c\/b\u003e 9781288727780\u003cbr\u003e\u003cb\u003ePublisher:\u003c\/b\u003e Bibliogov\u003cbr\u003e\u003cb\u003eLanguage:\u003c\/b\u003e English\u003cbr\u003e\u003cb\u003ePublished:\u003c\/b\u003e 02\/08\/2013\u003cbr\u003e\u003cb\u003ePages:\u003c\/b\u003e 40\u003cbr\u003e\u003cb\u003eFormat:\u003c\/b\u003e Paperback\u003cbr\u003e\u003cb\u003eWeight:\u003c\/b\u003e 0.20lbs\u003cbr\u003e\u003cb\u003eSize:\u003c\/b\u003e 9.69h x 7.44w x 0.08d","brand":"David M. Arseneau","offers":[{"title":"Paperback","offer_id":48994611724543,"sku":"9781288727780","price":15.75,"currency_code":"USD","in_stock":true}],"url":"https:\/\/www.whiterainbookhouse.com\/products\/international-finance-discussion-papers-david-m-arseneau-9781288727780","provider":"WR Book House","version":"1.0","type":"link"}