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Optimal redistribution: A life-cycle perspective

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  • Michau, Jean-Baptiste

Abstract

In this paper, I characterize the optimal redistribution policy in a simple life-cycle framework with both an intensive and an extensive margin of labor supply. The extensive margin corresponds to the choice of a retirement age. The optimal allocation cannot be implemented in a decentralized economy by a standard non-linear income tax alone. It can however be implemented by a history-dependent social security system which redistributes resources across agents. A calibration of the model to the U.S. economy reveals that the retirement age should optimally be sharply increasing in productivity and that implementing the optimal life-cycle redistribution policy can generate large social welfare gains.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 111 (2014)
Issue (Month): C ()
Pages: 1-16

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Handle: RePEc:eee:pubeco:v:111:y:2014:i:c:p:1-16

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Extensive margin; Optimal redistribution; Retirement age; Social security;

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Cited by:
  1. Philippe Choné & Guy Laroque, 2014. "Income tax and retirement schemes," Sciences Po Economics Discussion Papers 2014-06, Sciences Po Departement of Economics.
  2. Marcin Bielecki & Karolina Goraus & Jan Hagemejer & Krzysztof Makraski & Joanna Tyrowicz, 2014. "Small assumptions (can) have a large bearing: evaluating pension system reforms with OLG models," Working Papers 2014-20, Faculty of Economic Sciences, University of Warsaw.

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