Kumru, Cagri; Thanopoulos, Athanasios
This paper examines the impact of labor and capital income taxes in a stochastic overlapping generations (OLG) economy where agents face borrowing constraints and their behavior is temptation driven. We quantitatively establish that the existence of temptation in preferences may function as an opposing mechanism to modeling choices, such as liquidity constraints, life-cycle structure, and idiosyncratic earnings risks, that are critical in delivering a positive capital income tax rate. We show...[Show more]
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