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The Welfare Gains of Age Related Optimal Income Taxation

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Author Info

  • Spencer Bastani
  • Sören Blomquist
  • Luca Micheletto

Abstract

Using a calibrated overlapping generations model we quantify the welfare gains of an age dependent income tax. Agents face uncertainty regarding future abilities and can by saving transfer consumption across periods. The welfare gain of switching from an age-independent to an age-dependent nonlinear tax amounts in our benchmark model to around three percent of GDP. The gains are particularly high when there are restrictions on debt policy. The gains of using a nonlinear- as opposed to a linear tax are even larger. Surprisingly, it is of secondary importance to optimally choose the tax on interest income.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3225.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3225

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Related research

Keywords: labor income taxation; capital income taxation; age-dependent taxes; OLG model;

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References

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  1. Alesina, Alberto & Ichino, Andrea & Karabarbounis, Loukas, 2007. "Gender Based Taxation and the Division of Family Chores," IZA Discussion Papers 3233, Institute for the Study of Labor (IZA).
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The welfare gain from age-dependent taxation
    by Economic Logician in Economic Logic on 2010-11-22 15:27:00
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Cited by:
  1. Ooghe, Erwin & Peichl, Andreas, 2014. "Fair and efficent taxation under partial control," ZEW Discussion Papers 14-002, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Lasse Frisgaard Gunnersen & Bo Sandemann Rasmussen, 2012. "Optimal Tax-Transfer Policies, Life-Cycle Labour Supply and Present-Biased Preferences," Economics Working Papers 2012-12, School of Economics and Management, University of Aarhus.
  3. Bastani, Spencer, 2013. "Using the Discrete Model to Derive Optimal Income Tax Rates," Working Paper Series, Center for Fiscal Studies 2013:11, Uppsala University, Department of Economics.
  4. Spencer Bastani, 2013. "Gender-based and couple-based taxation," International Tax and Public Finance, Springer, vol. 20(4), pages 653-686, August.

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  1. Economic Logic blog

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