Optimal Taxation and Social Insurance in a Lifetime Perspective
AbstractAdvances in information technology have improved the administrative feasibility of redis- tribution based on lifetime earnings recorded at the time of retirement. We study optimal lifetime income taxation and social insurance in an economy in which redistributive taxation and social insurance serve to insure (ex ante) against skill heterogeneity as well as disability risk. Optimal disability benefits rise with previous earnings so that public transfers depend not only on current earnings but also on earnings in the past. Hence, lifetime taxation rather than annual taxation is optimal. The optimal tax-transfer system does not provide full disability insurance. By offering imperfect insurance and structuring disability benefits so as to enable workers to insure against disability by working harder, social insurance is designed to offset the distortionary impact of the redistributive labor income tax on labor supply.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2007-14.
Date of creation: 2007
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Optimal lifetime income taxation; optimal social insurance;
Other versions of this item:
- A. Lans Bovenberg & Peter Birch Sørensen, . "Optimal Taxation and Social Insurance in a Lifetime Perspective," EPRU Working Paper Series 06-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Lans Bovenberg & Peter Birch Sørensen, 2006. "Optimal Taxation and Social Insurance ina Lifetime Perspective," CESifo Working Paper Series 1690, CESifo Group Munich.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-17 (All new papers)
- NEP-IAS-2007-03-17 (Insurance Economics)
- NEP-PBE-2007-03-17 (Public Economics)
- NEP-PUB-2007-03-17 (Public Finance)
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