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The taxation of life annuities under adverse selection

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  • Direr, A.

Abstract

This paper studies how annuities should be taxed in a Mirrlees-type model in the presence of adverse selection and a positive link between income and longevity. The government is able to address the adverse selection problem by implementing a progressive marginal tax rate on annuities. This amounts to subsidizing small annuities (purchased by low incomes) and taxing large annuities (purchased by high incomes). Numerical simulations suggest that the taxation is significant and becomes more pronounced as annuitants get older.

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Bibliographic Info

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

Volume (Year): 94 (2010)
Issue (Month): 1-2 (February)
Pages: 50-58

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Handle: RePEc:eee:pubeco:v:94:y:2010:i:1-2:p:50-58

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

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Keywords: Optimal taxation Asymmetric information Life cycle models and saving;

References

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Cited by:
  1. Monika Bütler & Kim Peijnenburg & Stefan Staubli, 2013. "How Much Do Means-Tested Benefits Reduce the Demand for Annuities?," NRN working papers 2013-11, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.

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