Nonlinear taxation in an economy with heterogeneous firms and heterogeneous households
heterogeneous households; heterogeneous firms; capital taxation; asset-pricing in incomplete markets
In an economy with heterogeneous firms and heterogeneous consumers, we describe a general equilibrium where firm equity is priced by a supply and demand process. With a model robust to arbitrary, nonlinear tax functions, we investigate the efficiency of replacing the current U.S. tax regime with a policy of no corporate taxes and taxation of capital distributions to the household at progressive personal income tax rates. We find that this policy reduces wealth inequality and increases total welfare.