Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/185658 
Authors: 
Year of Publication: 
2017
Citation: 
[Journal:] International Journal of Business and Economic Sciences Applied Research (IJBESAR) [ISSN:] 2408-0101 [Volume:] 10 [Issue:] 1 [Publisher:] Eastern Macedonia and Thrace Institute of Technology [Place:] Kavala [Year:] 2017 [Pages:] 42-48
Publisher: 
Eastern Macedonia and Thrace Institute of Technology, Kavala
Abstract: 
Purpose: The purpose of this paper is to analyze the efficiency loss due to incomplete financial markets when risk is induced by technological uncertainty. Design/methodology/approach: A worker-capitalist general equilibrium model is developed. It is assumed that future technical change is a stochastic event, causing uncertainty in future relative prices. Then the model is calibrated to the US data. Findings: Our first finding is theoretical: the competitive equilibrium is Pareto-inefficient. Then we numerically calculate the taxes that make all individuals better-off at the calibrated parameter values. The results clearly show how the burden of taxation should be shared among workers and capitalists when the government uses redistribution of income as a tool of mitigating the loss of efficiency due to technological shocks. Research limitations/implications: The model is obviously a stripped-down version of reality, and hence, the results should be taken with a grain of salt as the numerical computations would be definitely sensitive to certain rich details of real life that are neglected in this study. Originality/value: The results show that the total amount of employment, and production are not affected by optimal taxation, which is a surprising result. Indeed, the inefficiency is primarily caused by the distribution of labor supply among individuals. The optimal taxes are also numerically computed.
Subjects: 
Incomplete markets
Constrained efficiency
redistribution
JEL: 
C68
D52
H21
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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