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Optimal Redistribution with Intensive and Extensive Labor Supply Margins: A Life-Cycle Perspective

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  • Jean-Baptiste Michau

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

Abstract

While the participation decision is discrete in a static context, i.e. to work or not to work, such is not the case in a life-cycle context where workers choose the fraction of their lifetime that they spend working. In this paper, I therefore characterize the optimal redistribution policy in a life-cycle framework with both an intensive and an extensive margin of labor supply. The government should optimally design a history-dependent social security system which induces higher productivity individuals to retire later. Some redistribution therefore needs to be done through the pension system; a standard non-linear income tax is not enough.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00639121.

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Date of creation: 08 Nov 2011
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Handle: RePEc:hal:wpaper:hal-00639121

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Related research

Keywords: Extensive margin; Optimal redistribution; Retirement age; Social security;

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References

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  1. Mikhail Golosov & Aleh Tsyvinski, 2006. "Designing Optimal Disability Insurance: A Case for Asset Testing," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 257-279, April.
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  3. Beaudry, Paul & Blackorby, Charles, 2006. "Taxes and Employment Subsidies in Optimal Redistribution Programs," The Warwick Economics Research Paper Series (TWERPS) 766, University of Warwick, Department of Economics.
  4. Chone, Philippe & Laroque, Guy, 2005. "Optimal incentives for labor force participation," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 395-425, February.
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  8. Aspen Gorry & Ezra Oberfield, 2012. "Optimal Taxation Over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 551-572, October.
  9. Eytan Sheshinski, 2003. "Optimum Delayed Retirement Credit," CESifo Working Paper Series 889, CESifo Group Munich.
  10. Richard Blundell & Andrew Shephard, 2008. "Employment, hours of work and the optimal taxation of low income families," IFS Working Papers W08/01, Institute for Fiscal Studies.
  11. Oliver Denk & Jean-Baptiste Michau, 2013. "Optimal Social Security with Imperfect Tagging," Working Papers hal-00796521, HAL.
  12. Blundell, Richard & Bozio, Antoine & Laroque, Guy, 2011. "Extensive and Intensive Margins of Labour Supply: Working Hours in the US, UK and France," IZA Discussion Papers 6051, Institute for the Study of Labor (IZA).
  13. Andres Erosa & Martin Gervais, 2000. "Optimal taxation in life-cycle economies," Working Paper 00-02, Federal Reserve Bank of Richmond.
  14. Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.
  15. Marek Kapicka, 2006. "Optimal Income Taxation with Human Capital Accumulation and Limited Record Keeping," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 612-639, October.
  16. Zvi Eckstein & Éva Nagypál, 2004. "The evolution of U.S. earnings inequality: 1961?2002," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Dec, pages 10-29.
  17. Peter A. Diamond, 2003. "Taxation, Incomplete Markets, and Social Security," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042134, December.
  18. Raj Chetty & Adam Guren & Day Manoli & Andrea Weber, 2012. "Does Indivisible Labor Explain the Difference between Micro and Macro Elasticities? A Meta-Analysis of Extensive Margin Elasticities," NBER Chapters, in: NBER Macroeconomics Annual 2012, Volume 27, pages 1-56 National Bureau of Economic Research, Inc.
  19. Barr, Nicholas & Diamond, Peter, 2008. "Reforming Pensions: Principles and Policy Choices," OUP Catalogue, Oxford University Press, number 9780195311303.
  20. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059.
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Cited by:
  1. Marios Karabarbounis, 2012. "Heterogeneity in Labor Supply Elasticity and Optimal Taxation," 2012 Meeting Papers 655, Society for Economic Dynamics.
  2. Oliver Denk & Jean-Baptiste Michau, 2013. "Optimal Social Security with Imperfect Tagging," Working Papers hal-00796521, HAL.

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