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Intergenerational policy and the measurement of tax incidence

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  • Juan Carlos Conesa
  • Carlos Garriga

Abstract

Policymakers often use measures of tax incidence (generational accounts) as criteria for policy selection. We use a quantitative model of optimal intergenerational policy to evaluate the ability of the tax incidence metric to capture the identity of recipients and contributors and the magnitudes transferred. The analysis suggests that when the reform implies a substantial change in economic efficiency, the tax metric fails to identify the magnitude of the welfare changes and those who benefit from those who pay. In contrast, when the policies evaluated imply only intergenerational redistribution, the metric correctly identifies winners and losers and provides reasonable estimates of the magnitude of welfare changes.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2013-016.

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Date of creation: 2013
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Handle: RePEc:fip:fedlwp:2013-016

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Keywords: Taxation ; Fiscal policy;

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  1. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
  2. Juan C. Conesa & Dirk Krueger, 2004. "Taxing Capital: Not a Bad Idea After All," 2004 Meeting Papers 403, Society for Economic Dynamics.
  3. Laurence J. Kotlikoff & Kent Smetters & Jan Walliser, 2002. "Distributional Effects in a General Equilibrium Analysis of Social Security," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 327-370 National Bureau of Economic Research, Inc.
  4. Shinichi Nishiyama & Kent Smetters, 2007. "Does Social Security Privatization Produce Efficiency Gains?," The Quarterly Journal of Economics, MIT Press, vol. 122(4), pages 1677-1719, November.
  5. Luisa Fuster & Ayse Imrohoroglu & Selahattin Imrohoroglu, 2004. "Elimination of Social Security in a Dynastic Framework," Macroeconomics 0402008, EconWPA.
  6. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August.
  7. Hansen, G.D., 1991. "The Cyclical and Secular Behavior of the Labor Input : Comparing Efficiency Units and Hours Worked," Papers 36, California Los Angeles - Applied Econometrics.
  8. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
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