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Age-related Optimal Income Taxation

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  • Sören Blomquist
  • Luca Micheletto

Abstract

In most countries, average income varies with age. In this paper we investigate if and how it is possible to enhance the redistributive mechanism by relating tax payments to age. Using an OLG model where some individuals are low skilled all their life while others are low skilled when young but high skilled when old, we first show how an age "dependent" optimal income tax can Pareto improve upon an age "independent" income tax. We then characterize the optimal age "dependent" income tax. A tax on interest income is part of the optimal tax structure. Copyright � The editors of the "Scandinavian Journal of Economics" 2008 .

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 110 (2008)
Issue (Month): 1 (03)
Pages: 45-71

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Handle: RePEc:bla:scandj:v:110:y:2008:i:1:p:45-71

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  1. Louis Kaplow, 2000. "Horizontal Equity: New Measures, Unclear Principles," NBER Working Papers 7649, National Bureau of Economic Research, Inc.
  2. Viard, Alan D, 2001. " Optimal Categorical Transfer Payments: The Welfare Economics of Limited Lump-Sum Redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 483-500.
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  8. Louis Kaplow, 1989. "Horizontal Equity: Measures in Search of a Principle," NBER Working Papers 1679, National Bureau of Economic Research, Inc.
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  10. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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  12. Ritva Immonen & Ravi Kanbur & Michael Keen & Matti Tuomala, 1994. "Tagging and taxing: the optimal use of categorical and income information in designing tax/transfer schemes," IFS Working Papers W94/05, Institute for Fiscal Studies.
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