||Consumption Taxes and Divisibility of Labor under Incomplete Markets
Nakajima, TomoyukiTakahashi, Shuhei
JSPS Grants-in-Aid for Scientific Research (S) Understanding Persistent Deflation in Japan Working Paper Series
0832016-03 , UTokyo Price Project , Institute of Economic Research, Kyoto University , Canon Institute for Global Studies
2012～2016年度科学研究費補助金[基盤研究(S)]「長期デフレの解明」(研究代表者 東京大学経済学研究科・渡辺努, 課題番号：24223003)
We analyze lump-sum transfers financed through consumption taxes in a heterogeneous- agent model with uninsured idiosyncratic wage risk and endogenous labor supply. The model is calibrated to the U.S. economy. We find that consumption inequality and uncertainty decrease with transfers much more substantially under divisible than indivisible labor. Increasing transfers by raising the consumption tax rate from 5% to 35% decreases the consumption Gini by 0.04 under divisible labor, whereas it has almost no effect on the consumption Gini under indivisible labor. The divisibility of labor also affects the relationship among consumption-tax financed transfers, aggregate saving, and the wealth distribution.