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Optimal linear redistributive tax and pension systems with flexible labor supply

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  • Andras Simonovits

    ()
    (Institute of Economics, Research Center for Economic and Regional Studies,)

Abstract

The tax system redistributes labor incomes among workers, the pension system redistributes incomes from workers to pensioners. We consider a linear transfer system, where workers pay pension contributions and personal income taxes and pensioners receive proportional benefits, while workers and pensioners enjoy basic income. Every worker maximizes his discounted lifetime utility function, depending on young- and old-age consumption plus leisure. The government chooses a transfer system which maximizes the undiscounted social welfare function. Our major result is as follows: The optimal transfer system balances the efficiency of proportional pensions and the guarantee of the basic income.

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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1233.

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Length: 17 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:has:discpr:1233

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Keywords: personal income tax; pension system; optimal redistribution;

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References

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  1. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
  2. James Sefton & Justin vandeVen & Martin Weale, 2008. "Means Testing Retirement Benefits: fostering equity or discouraging savings?," Economic Journal, Royal Economic Society, vol. 118(528), pages 556-590, 04.
  3. Andras Simonovits, 2012. "Means-tested or Flat Pension? Pension Credit," IEHAS Discussion Papers 1221, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  4. Andersen, Torben M., 2012. "Fiscal sustainability and demographics – Should we save or work more?," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 264-280.
  5. Andras Simonovits, 2009. "Underreported earnings and age-specific income redistribution in post-socialist economies," IEHAS Discussion Papers 0927, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
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Cited by:
  1. Andras Simonovits, 2013. "A family of simple paternalistic transfer models," IEHAS Discussion Papers 1324, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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