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Progressive Taxation and the Life‐Cycle Model: An Application of the Theory of Firm

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  • EATZAZ AHMAD

Abstract

In the presence of a progressive consumption (wage income) lax the marginal cost of consumption (leisure) is rising and* the life‐cycle allocation problem of an individual is presentable in the framework of a monopsony. Although the progressive taxes do not in general alter the qualitative nature of standard results on life‐cycle theory, their quantitative implications are serious. In contrast to the equivalence between proportional consumption and wage income taxes, the effects of the two progressive taxes on the life‐cycle consumption and labour supply allocation decision are not only different but in most cases also in opposite directions.

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  • Eatzaz Ahmad, 1995. "Progressive Taxation and the Life‐Cycle Model: An Application of the Theory of Firm," The Economic Record, The Economic Society of Australia, vol. 71(3), pages 248-258, September.
    • Handle: RePEc:bla:ecorec:v:71:y:1995:i:3:p:248-258
    DOI: 10.1111/j.1475-4932.1995.tb01892.x
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