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on Public Finance |
| By: | Anmol Bhandari; Jaroslav Borovička; Yuki Yao |
| Abstract: | This paper studies optimal tax design when the cross-sectional distribution of types may be misspecified, and the government acts cautiously vis-à-vis these misspecifications. In models without such concerns, fat-tailed distributions imply positive—often high—top marginal tax rates. We demonstrate that even vanishingly small misspecification concerns overturn this finding, driving top marginal tax rates to zero. Calibrating concerns to observed variation in income distributions shows that taxes for below-average incomes remain essentially unchanged, while progressivity for high-income earners is substantially reduced. |
| JEL: | D61 D81 D82 E61 H21 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34218 |
| By: | Stefan Wöhrmüller |
| Abstract: | How does uninsurable idiosyncratic risk shape the optimal design of carbon taxation? To answer this question, I augment a heterogeneous-agent incomplete-markets model with a climate externality on total factor productivity and dirty energy demand of households and firms. A government sets a carbon tax on energy and redistributes its revenue via lump-sum transfers. When labor tax instruments are held fixed, I find that the optimal carbon tax rises with the level of uninsurable idiosyncratic risk. In contrast, when labor taxes can adjust, the carbon tax remains relatively stable across different economic environments. Overall, welfare gains are primarily driven by improved insurance provision. |
| Keywords: | heterogeneous agents; precautionary savings; carbon taxation |
| JEL: | D31 D52 E21 H21 Q50 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:841 |