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Optimal Age-Specific Income Taxation

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  • JEAN-MARIE LOZACHMEUR

Abstract

This paper studies optimal earnings taxation in a three-period life-cycle model where taxes can be differentiated according to age. Agents choose their level of education when young and their retirement age when old. I study the problem both without and with borrowing constraints. It is shown that, without borrowing constraints, a first-best optimum can be decentralized by setting a zero tax rate in the third period and a first-period tax lower than the second-period one. With borrowing constraints, the first best can no longer be achieved. The gap between the first- and second-period tax rates is larger, while the third-period tax rate is generally different from zero. Copyright 2006 Blackwell Publishing, Inc..

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 8 (2006)
Issue (Month): 4 (October)
Pages: 697-711

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Handle: RePEc:bla:jpbect:v:8:y:2006:i:4:p:697-711

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Cited by:
  1. Gopi Shah Goda, 2007. "Implicit Social Security Tax Rates over the Life Cycle," Discussion Papers 06-021, Stanford Institute for Economic Policy Research.
  2. Peter A. Diamond, 2009. "Taxes and Pensions," CESifo Working Paper Series 2636, CESifo Group Munich.
  3. Philippe Choné & Guy Laroque, 2014. "Income tax and retirement schemes," Sciences Po Economics Discussion Papers 2014-06, Sciences Po Departement of Economics.
  4. Philippe Choné & Guy Laroque, 2014. "Income tax and retirement schemes," Sciences Po publications 2014-06, Sciences Po.
  5. CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, 2008. "Habit formation and labor supply," CORE Discussion Papers 2008038, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Pierre Pestieau & Maria Racioenero, 2011. "Tagging with leisure needs," ANU Working Papers in Economics and Econometrics 2011-553, Australian National University, College of Business and Economics, School of Economics.
  7. Nathalie Mathieu-Bolh, 2011. "Optimal taxation and borrowing constraints," Economía, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, vol. 36(31), pages 9-53, January-j.
  8. Laitner, John & Silverman, Dan, 2012. "Consumption, retirement and social security: Evaluating the efficiency of reform that encourages longer careers," Journal of Public Economics, Elsevier, vol. 96(7-8), pages 615-634.
  9. Mathias Kifmann, 2008. "Age-Dependent Taxation and the Optimal Retirement Benefit Formula," German Economic Review, Verein für Socialpolitik, vol. 9, pages 41-64, 02.
  10. Jean-Marie Lozachmeur, 2006. "Disability insurance and optimal income taxation," International Tax and Public Finance, Springer, vol. 13(6), pages 717-732, November.

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