Christophe Chamley

The Welfare Cost of Capital Income Taxation in a Growing Economy

The welfare cost of capital income taxation is analyzed in a general equilibrium framework, where the private sector is represented by a competitive household endowed with perfect foresight and an infinite life. The value of the welfare cost depends essentially on the elasticity of substitution between capital and labor in the production function. Numerical estimates are presented for different values of the parameters of the model. The welfare gain obtained by the abolition of the capital income tax is smaller when the private sector is not endowed with perfect foresight (it is reduced by about 40 percent when expectations are myopic). The allocation efficiency cost of the corporate tax dwarfs the intertemporal welfare cost.

Externalities and Dynamics in Models of "Learning or Doing."

This paper analyzes the dynamics of general equilibrium models with ex- ternalities in human capital accumulation and measures analytically the impact of endowment shocks on the levels of output in the short- and the long-run. For some parameter values, self-fullfilling expectations and exter- nalities generate a continuum of equilibria. In general, positive endowment shocks can be followed by higher or lower growth rates. A simple condition is established for a positive impact of physical capital on the level of output in the long-term. Under the same condition which is satisfied for plausible values of the structural parameters, lump-sum taxa- tion is less efficient than some capital income taxation.

Assets, General Equilibrium and the Neutrality of Money

When government liabilities (including money) are held in private portfolios only as stores of value and do not provide additional services (such as liquidity), real variables are not affected by changes in the money supply due to the governments trading in real assets (open market operations). This neutrality of monetary policy fails if the government either trades in nominal assets, or it distributes subsidies and levies taxes.

Efficient Tax Reform in a Dynamic Model of General Equilibrium

The welfare gain of a shift from capital to a labor income tax is determined in a model of intertemporal optimization with infinite horizon and variable labor supply. The welfare impact of small tax changes is computed by an approximation method around the steady state. When the difference between the growth rate and the discount rate is small, the welfare impact of tax reform depends mainly on the parameters of the production function.

On a simple rule for the optimal inflation rate in second best taxation

Abstract The optimal inflation rate is analyzed in the framework of dynamic second best with endogenous factor prices. It is shown that when the marginal excess burden of taxation is relatively small, the optimal inflation rate is approximated by a simple rule. The paper also analyzes the robustness of this rule to the specification of the model (money as an input in utility or production).

Entrepreneurial Abilities and Liabilities in a Model of Self-Selection

The role of the liability form as a signalling device is analyzed in a model of occupational choice (entrepreneurs, employees), with asymmetric information in loan markets about the abilities of entrepreneurs. The properties of the equilibrium are described. When factor prices are exogenous, the feasibility of limited liability is a Pareto improvement over a regime where there is only unlimited liability. This result does not hold when factor prices are endogenous.