Speaker: Dr. Marek Kapička

Title: Optimal Fiscal Policy under Preference Heterogeneity

Schedule: Nov 11, Mon 1:30-3:00 PM

Location: 诚明楼 (Chengming Hall), Rm 315

Introduction: Marek Kapička has been serving as the Director of CERGE, Charles University, and the Economics Institute of the Czech Academy of Sciences (EI) since January 2024. He has been an Associate Professor with Tenure (under US permanent charter) at CERGE-EI since 2013. He is a Docent (Associate Professor) at CERGE, Charles University and a Senior Researcher at the Economics Institute of the Czech Academy of Sciences. He was also an Associate Professor at U.C. Santa Barbara. He received his M.A. in Economics from Charles University and Ph.D. from the University of Chicago. He has published in journals such as Review of Economic Studies, Journal of Monetary Economics, Review of Economic Dynamics, or American Economic Journal: Macroeconomics.

Abstract: This paper studies optimal fiscal policy in a dynamic economy with aggregate shocks, where agents are heterogeneous in their incomes, preferences toward risk, and the intertemporal elasticity of substitution. I show that i) if low-income people have lower intertemporal elasticity of substitution or higher risk aversion, the optimal marginal tax rates are procyclical, and transfers are countercyclical; ii) optimal marginal tax rates increase by about 2.2 percentage points for each percentage increase in productivity, and iii) US marginal tax rate fluctuations were close to optimal before 1980, but not much after that because they turned countercyclical. The results are due to preference heterogeneity, which leads to procyclical fluctuations in the implicit price of the informational rent of the agents across time and states and, in turn, to fluctuations in marginal taxes and transfers.