TY  - JOUR
AU  - Benhabib,Jess
AU  - Bisin,Alberto
TI  - The distribution of wealth and fiscal policy in economies with finitely lived agents
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14730
PY  - 2009
Y2  - February 2009
UR  - http://www.nber.org/papers/w14730
L1  - http://www.nber.org/papers/w14730.pdf
N1  - Author contact info:
Jess Benhabib
Department of Economics
New York University
19 West 4th Street, 6th Floor
New York, NY 10012
Tel: 212/998-8971
Fax: 212/995-4186
E-Mail: jess.benhabib@nyu.edu

Alberto Bisin
Department of Economics
New York University
19 West 4th Street, 5th Floor
New York, NY 10012
Tel: 212/998-8916
Fax: 212/995-4186
E-Mail: alberto.bisin@nyu.edu
AB  - We study the dynamics of the distribution of overlapping generation economy with finitely lived agents and inter-generational transmission of wealth. Financial markets are incomplete, exposing agents to both labor income and capital income risk. We show that the stationary wealth distribution is a Pareto distribution in the right tail and that it is capital income risk, rather than labor income, that drives the properties of the right tail of the wealth distribution. We also study analytically the dependence of the distribution of wealth, of wealth inequality in particular, on various fiscal policy instruments like capital income taxes and estate taxes. We show that capital income and estate taxes can significantly reduce wealth inequality. Finally, we characterize optimal redistributive taxes with respect to a utilitarian social welfaremeasure. Social welfare is maximized short of minimal wealth inequality and with zero estate taxes. Finally, we study the effects of different degrees of social mobility on the wealth distribution.
ER  -