Optimal Taxation and Life Cycle Labor Supply Profile
AbstractThe optimal capital income tax rate is 36 percent as reported by Conesa, Kitao, and Krueger (2009). This result is mainly driven by the market incompleteness as well as the endogenous labor supply in a life-cycle framework. We show that this model fails to account for the basic life-cycle features of the labor supply observed in the U.S. data. In this paper, we introduce into this model non-linear wages and inter-vivos transfers into this model in order to account for the life-cycle features of labor supply. The former makes hours of work highly persistent and helps to account for labor choices at the extensive margin over the life cycle. The latter allows us to account for labor choices early in life. The suggested model delivers an optimal capital income tax rate of 7.4 percent, which is significantly lower than what Conesa, Kitao, and Krueger (2009) found.
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Bibliographic InfoPaper provided by Peruvian Economic Association in its series Working Papers with number 2014-8.
Date of creation: Feb 2014
Date of revision:
Labor supply; optimal taxation; capital taxation; non-linear wage; inter-vivos transfer;
Other versions of this item:
- Céspedes, Nikita & Kuklik, Michael, 2013. "Optimal Taxation and Life Cycle Labor Supply Profile," Working Papers 2013-020, Banco Central de Reserva del Perú.
- Michael Kuklik & Nikita Cespedes, 2013. "Optimal Taxation and Life Cycle Labor Supply Profile," Documentos de Trabajo 2013-352, Departamento de Economía - Pontificia Universidad Católica del Perú.
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-08 (All new papers)
- NEP-DGE-2014-03-08 (Dynamic General Equilibrium)
- NEP-LAB-2014-03-08 (Labour Economics)
- NEP-MAC-2014-03-08 (Macroeconomics)
- NEP-PBE-2014-03-08 (Public Economics)
- NEP-PUB-2014-03-08 (Public Finance)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Optimal Taxation and Life Cycle Labor Supply Profile
by Christian Zimmermann in NEP-DGE blog on 2014-03-16 14:59:59
- Mario D. Tello, 2013. "Science, Technology and Innovation in Peru 2000-2012: The Case of Services," Documentos de Trabajo 2013-353, Departamento de Economía - Pontificia Universidad Católica del Perú.
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