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Tax buyouts

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Author Info

  • Marco Del Negro
  • Fabrizio Perri
  • Fabiano Schivardi

Abstract

The paper studies a fiscal policy instrument that can reduce fiscal distortions without affecting revenues, in a politically viable way. The instrument is a private contract (tax buyout), offered by the government to each citizen, whereby the citizen can choose to pay a fixed price in exchange for a given reduction in her tax rate for a period of time. We introduce the tax buyout in a dynamic overlapping generations economy, calibrated to match several features of the US income, taxes and wealth distribution. Under simple pricing, the introduction of the buyout is revenue neutral but, by reducing distortions, it benefits a significant fraction of the population and leads to sizable increases in aggregate labor supply, income and consumption.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 441.

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Date of creation: 2010
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Handle: RePEc:fip:fedmsr:441

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Keywords: Taxation;

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References

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  1. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  2. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
  3. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
  4. Gouveia, Miguel & Strauss, Robert P., 1994. "Effective Federal Individual Tax Functions: An Exploratory Empirical Analysis," National Tax Journal, National Tax Association, vol. 47(2), pages 317-39, June.
  5. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  6. Selahattin Imrohoroglu & Sagiri Kitao, 2009. "Labor Supply Elasticity and Social Security Reform," Working Papers, Center for Retirement Research at Boston College wp2009-5, Center for Retirement Research, revised Mar 2009.
  7. Krusell, P & Smith Jr, A-A, 1995. "Income and Wealth Heterogeneity in the Macroeconomic," RCER Working Papers 399, University of Rochester - Center for Economic Research (RCER).
  8. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2008. "The Macroeconomic Implications of Rising Wage Inequality in the United States," NBER Working Papers 14052, National Bureau of Economic Research, Inc.
  9. Luisa Fuster & Gueorgui Kambourov & Andres Erosa, 2008. "The Heterogeneity and Dynamics of Individual Labor Supply over the Life-Cycle: Facts and Theory," 2008 Meeting Papers 529, Society for Economic Dynamics.
  10. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  11. Juan C. Conesa & Dirk Krueger, 2004. "Taxing Capital: Not a Bad Idea After All," 2004 Meeting Papers 403, Society for Economic Dynamics.
  12. Kjetil Storesletten & Gianluca Violante & Jonathan Heathcote, 2012. "Redistributive Taxation in a Partial Insurance Economy," 2012 Meeting Papers 588, Society for Economic Dynamics.
  13. Bernard Salanié, 2003. "The Economics of Taxation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262194864, December.
  14. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  15. Slemrod, Joel & Yitzhaki, Shlomo & Mayshar, Joram & Lundholm, Michael, 1994. "The optimal two-bracket linear income tax," Journal of Public Economics, Elsevier, vol. 53(2), pages 269-290, February.
  16. Alberto Alesina & Philippe Weil, 1992. "Menus of Linear Income Tax Schedules," NBER Working Papers 3968, National Bureau of Economic Research, Inc.
  17. Diamond, Peter A, 1998. "Optimal Income Taxation: An Example with a U-Shaped Pattern of Optimal Marginal Tax Rates," American Economic Review, American Economic Association, vol. 88(1), pages 83-95, March.
  18. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc.
  19. Martin Feldstein, 1995. "Behavioral Responses to Tax Rates: Evidence from TRA86," NBER Working Papers 5000, National Bureau of Economic Research, Inc.
  20. Emmanuel Saez, 2000. "Using Elasticities to Derive Optimal Income Tax Rates," NBER Working Papers 7628, National Bureau of Economic Research, Inc.
  21. Kenichi Fukushima, 2010. "Quantifying the Welfare Gains From Flexible Dynamic Income Tax Systems," 2010 Meeting Papers 410, Society for Economic Dynamics.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How to remove tax distortions with revenue neutrality
    by Economic Logician in Economic Logic on 2010-05-11 14:22:00
  2. Ett innovativt skatteförslag
    by Niclas Berggren in Nonicoclolasos on 2010-05-18 09:27:32

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