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Income Taxation in a Life Cycle Model with Human Capital

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  • Michael Keane

    ()
    (School of Economics and ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

Abstract

This paper examines the effect of labor income taxation in life-cycle models where work experience builds human capital. In this case, the wage no longer equals the opportunity cost of time - which is, instead, the wage plus returns to work experience. This has a number of interesting consequences.

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File URL: http://cepar.edu.au/media/48652/Income%20Taxation%20Life%20Cycle%20Model.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales in its series Working Papers with number 201117.

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Length: 43 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:asb:wpaper:201117

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  1. Wilbert van der Klaauw & Kenneth I. Wolpin, 2005. "Social Security and the Retirement and Savings Behavior of Low Income Households," PIER Working Paper Archive 05-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Ellen R. McGrattan & Richard Rogerson, 1998. "Changes in hours worked since 1950," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 2-19.
  3. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
  4. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 25(1), pages 11-44, January.
  5. Michael Keane, 2010. "Labor Supply and Taxes: A Survey," Working Paper Series, Finance Discipline Group, UTS Business School, University of Technology, Sydney 160, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  6. Geweke, John & Keane, Michael, 2000. "An empirical analysis of earnings dynamics among men in the PSID: 1968-1989," Journal of Econometrics, Elsevier, Elsevier, vol. 96(2), pages 293-356, June.
  7. Emmanuel Saez, 2000. "Using Elasticities to Derive Optimal Income Tax Rates," NBER Working Papers 7628, National Bureau of Economic Research, Inc.
  8. Low, Hamish & Maldoom, Daniel, 2004. "Optimal taxation, prudence and risk-sharing," Journal of Public Economics, Elsevier, Elsevier, vol. 88(3-4), pages 443-464, March.
  9. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  10. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
  11. Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, Elsevier, vol. 144(6), pages 2277-2292, November.
  12. Michael P. Keane & Kenneth I. Wolpin, 2010. "The Role Of Labor And Marriage Markets, Preference Heterogeneity, And The Welfare System In The Life Cycle Decisions Of Black, Hispanic, And White Women," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 851-892, 08.
  13. James J. Heckman, 1976. "Estimates of a Human Capital Production Function Embedded in a Life-Cycle Model of Labor Supply," NBER Chapters, in: Household Production and Consumption, pages 225-264 National Bureau of Economic Research, Inc.
  14. Kimmel, Jean & Kniesner, Thomas J., 1998. "New evidence on labor supply:: Employment versus hours elasticities by sex and marital status," Journal of Monetary Economics, Elsevier, Elsevier, vol. 42(2), pages 289-301, July.
  15. Heckman, James J & MaCurdy, Thomas, 1982. "Corrigendum on a Life Cycle Model of Female Labour Supply," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(4), pages 659-60, October.
  16. repec:bla:restud:v:72:y:2005:i:2:p:395-427 is not listed on IDEAS
  17. Edward C. Prescott, 2006. "Nobel Lecture: The Transformation of Macroeconomic Policy and Research," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(2), pages 203-235, April.
  18. Eric French, 2004. "The Effects of Health, Wealth and Wages on Labor Supply and Retirement Behavior," 2004 Meeting Papers, Society for Economic Dynamics 96, Society for Economic Dynamics.
  19. Charles L. Ballard & Don Fullerton, 1993. "Distortionary Taxes and the Provision of Public Goods," NBER Working Papers 3506, National Bureau of Economic Research, Inc.
  20. Patrick Bajari & Ali Hortacsu, 2003. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," Working Papers, Stanford University, Department of Economics 03002, Stanford University, Department of Economics.
  21. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(3), pages 473-522, June.
  22. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(6), pages 1059-85, December.
  23. David Domeij & Martin Floden, 2006. "The Labor-Supply Elasticity and Borrowing Constraints: Why Estimates are Biased," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 242-262, April.
  24. Susumu Imai & Michael P. Keane, 2004. "Intertemporal Labor Supply and Human Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 601-641, 05.
  25. Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(3), pages 297-302, July.
  26. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2003. "Risk averse behavior in generalized matching pennies games," Games and Economic Behavior, Elsevier, Elsevier, vol. 45(1), pages 97-113, October.
  27. Shaw, Kathryn L, 1989. "Life-Cycle Labor Supply with Human Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 431-56, May.
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Citations

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Cited by:
  1. Michael P. Keane, 2011. "Labor Supply and Taxes: A Survey," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 961-1075, December.
  2. Rupert, Peter & Zanella, Giulio, 2012. "Revisiting wage, earnings, and hours profiles," University of California at Santa Barbara, Economics Working Paper Series qt61f2f1hv, Department of Economics, UC Santa Barbara.

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