Seminario académico de Finanzas y Contabilidad

04 de octubre, 13 horas, sala P307, Facultad de Economía y Negocios

Título: Risk Taking, Taxes, and Growth

: 04 de octubre, 13 horas, sala P307, Facultad de Economía y Negocios

: Aloisio Araujo, profesor titular en Instituto de Matemática Pura e Aplicada, en Brasil y la Escuela de Economía y Finanzas de FGV / EPGE.


We study the impact of tax and transfer polices in overlapping generations models where agents have warm-glow bequest motives. We focus on models in which some dynasties of agents are risk averters and others are dynasties of risk lovers. Making simplifying assumptions, we construct a sequence of four models in which we are able to calculate invariant distributions for wealth holdings. In the first model, the risky asset have the same expected return as the safe asset; in the second model and third model, only one type of agents can invest in the risky asset; and in the fourth, agents can only invest in one type of asset at a time. We interpret the decision to invest in the risky asset as the career choice to become an entrepreneur. These simplifying assumptions prevent risk averters from holding diversified portfolios of the risky asset and the safe asset, which allows us to calculate an invariant wealth distribution. A typical result across models is that increasing taxes and transfers reduces inequality but reduces growth. We identify parameter values for the model where agents are restricted to invest in only one type of assets in which high enough taxes and transfers insure risk averters and induce poor risk averters to invest in the risky asset. Those risk averters who are lucky and accumulate a large enough level of wealth choose to switch to investing in the safe asset. In this case, increasing taxes and increases growth and the welfare of risk averters although it decreases the welfare of risk lovers.