Advanced Search
MyIDEAS: Login to save this article or follow this journal

On the desirability of taxing capital income in optimal social insurance

Contents:

Author Info

  • Jacobs, Bas
  • Schindler, Dirk

Abstract

This paper analyzes optimal linear taxes on labor income and savings in a two-period life-cycle model with ex ante identical households, endogenous leisure demands in both periods, and general processes of skill shocks over the life cycle. We demonstrate that the Atkinson–Stiglitz theorem breaks down under risk. Capital taxes are employed besides labor income taxes for two distinct reasons: i) capital taxes reduce labor supply distortions on second-period labor supply, since second-period labor supply and saving are substitutes, ii) capital taxes insure first-period income risk, although this benefit is partially off-set because first-period labor supply and saving are complements. Our results imply that (retirement) saving should not be actuarially fair.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0047272712000473
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

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

Volume (Year): 96 (2012)
Issue (Month): 9-10 ()
Pages: 853-868

as in new window
Handle: RePEc:eee:pubeco:v:96:y:2012:i:9:p:853-868

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Optimal capital-income taxation; Risk; Atkinson–Stiglitz theorem;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Carmen F. Menezes & X. Henry Wang, 2005. "Duality and the Slutsky income and substitution effects of increases in wage rate uncertainty," Oxford Economic Papers, Oxford University Press, vol. 57(3), pages 545-557, July.
  2. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 147-74, Fall.
  3. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, Elsevier, vol. 10(3), pages 295-336, December.
  4. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2003. "Optimal Indirect and Capital Taxation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 569-587.
  5. Shinichi Nishiyama & Kent Smetters, 2005. "Consumption Taxes and Economic Efficiency with Idiosyncratic Wage Shocks," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(5), pages 1088-1115, October.
  6. Narayana Kocherlakota, 2004. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Levine's Bibliography 122247000000000729, UCLA Department of Economics.
  7. CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIEAU, Pierre, . "Social security, retirement age and optimal income taxation," CORE Discussion Papers RP -1722, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, Elsevier, vol. 28(1), pages 59-83, October.
  9. Peter Diamond & Emmanuel Saez, 2011. "The Case for a Progressive Tax: From Basic Research to Policy Recommendations," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 165-90, Fall.
  10. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 93-107, May.
  11. Helmuth Cremer & Firouz Gahvari, 1999. "Uncertainty and Optimally Uniform Commodity Taxes," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 156-167, July.
  12. Stefania Albanesi & Christopher Sleet, 2004. "Dynamic optimal taxation with private information," Discussion Paper / Institute for Empirical Macroeconomics 140, Federal Reserve Bank of Minneapolis.
  13. Cremer, Helmuth & Gahvari, Firouz, 1999. " Uncertainty, Commitment, and Optimal Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(1), pages 51-70.
  14. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 607-22, May.
  15. Sinn, Hans-Werner, 1996. "Social Insurance, Incentives and Risk Taking," Munich Reprints in Economics, University of Munich, Department of Economics 19834, University of Munich, Department of Economics.
  16. Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty, Optimal Taxation and the Direct versus Indirect Tax Controversy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(432), pages 1165-79, September.
  17. Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2009. "Taxing Capital? Not a Bad Idea after All!," American Economic Review, American Economic Association, American Economic Association, vol. 99(1), pages 25-48, March.
  18. Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty and optimal taxation: In defense of commodity taxes," Journal of Public Economics, Elsevier, Elsevier, vol. 56(2), pages 291-310, February.
  19. Deaton, Angus, 1979. "Optimally uniform commodity taxes," Economics Letters, Elsevier, vol. 2(4), pages 357-361.
  20. Sören Blomquist & Vidar Christiansen, 2004. "Taxation and Heterogeneous Preferences," CESifo Working Paper Series 1244, CESifo Group Munich.
  21. Blomquist, Sören & Micheletto, Luca, 2003. "Age Related Optimal Income Taxation," Working Paper Series, Uppsala University, Department of Economics 2003:7, Uppsala University, Department of Economics.
  22. Mikhail Golosov & Aleh Tsyvinski, 2004. "Designing Optimal Disability Insurance: A Case for Asset Testing," NBER Working Papers 10792, National Bureau of Economic Research, Inc.
  23. Sandmo, Agnar, 1976. "Optimal taxation : An introduction to the literature," Journal of Public Economics, Elsevier, Elsevier, vol. 6(1-2), pages 37-54.
  24. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August.
  25. Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 14(3), pages 365-374, December.
  26. Saez, Emmanuel, 2002. "The desirability of commodity taxation under non-linear income taxation and heterogeneous tastes," Journal of Public Economics, Elsevier, Elsevier, vol. 83(2), pages 217-230, February.
  27. Jonathan Gruber & David A. Wise, 1999. "Introduction to "Social Security and Retirement around the World"," NBER Chapters, in: Social Security and Retirement around the World, pages 1-35 National Bureau of Economic Research, Inc.
  28. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
  29. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 6(1-2), pages 55-75.
  30. Ordover, J. A. & Phelps, E. S., 1979. "The concept of optimal taxation in the overlapping-generations model of capital and wealth," Journal of Public Economics, Elsevier, Elsevier, vol. 12(1), pages 1-26, August.
  31. S. Rao Aiyagari, 1994. "Optimal capital income taxation with incomplete markets, borrowing constraints, and constant discounting," Working Papers, Federal Reserve Bank of Minneapolis 508, Federal Reserve Bank of Minneapolis.
  32. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, October.
  33. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 88(1), pages 25-50.
  34. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, American Economic Association, vol. 64(4), pages 701-06, September.
  35. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 90(359), pages 529-49, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Findeisen, Sebastian & Sachs, Dominik, 2014. "Efficient Labor and Capital Income Taxation over the Life Cycle," Working Papers, University of Mannheim, Department of Economics 14-17, University of Mannheim, Department of Economics.
  2. Bas Jacobs, 2013. "From Optimal Tax Theory to Applied Tax Policy," CESifo Working Paper Series 4151, CESifo Group Munich.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:96:y:2012:i:9:p:853-868. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.