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The Welfare Gains of Age Related Optimal Income Taxation

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Author Info

  • Bastani, Spencer

    ()
    (Uppsala Center for Fiscal Studies)

  • Blomquist, Sören

    ()
    (Uppsala Center for Fiscal Studies)

  • Micheletto, Luca

    ()
    (Uppsala Center for Fiscal Studies)

Abstract

Using a calibrated overlapping generations model we quantify the welfare gains of an age dependent income tax. Agents face uncertainty regarding future abilities and can by saving transfer consumption across periods. The welfare gain of switching from an age-independent to an age-dependent nonlinear tax amounts in our benchmark model to around three percent of GDP. The gains are particularly high when there are restrictions on debt policy. The gains of using a nonlinear- as opposed to a linear tax are even larger. Surprisingly, it is of secondary importance to optimally choose the tax on interest income.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2010:12.

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Length: 48 pages
Date of creation: 25 Oct 2010
Date of revision:
Publication status: Published as Bastani, Spencer, Sören Blomquist and Luca Micheletto, 'The Welfare Gains of Age Related Optimal Income Taxation' in International Economic Review, 2013, pages 1219-1249.
Handle: RePEc:hhs:uufswp:2010_012

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Related research

Keywords: labor income taxation; capital income taxation; age-dependent taxes; OLG model;

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References

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  1. Alesina, Alberto F & Ichino, Andrea & Karabarbounis, Loukas, 2007. "Gender Based Taxation and the Division of Family Chores," CEPR Discussion Papers 6591, C.E.P.R. Discussion Papers.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The welfare gain from age-dependent taxation
    by Economic Logician in Economic Logic on 2010-11-22 15:27:00
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Cited by:
  1. Bastani, Spencer, 2012. "Gender-Based and Couple-Based Taxation," Working Paper Series, Center for Fiscal Studies 2012:6, Uppsala University, Department of Economics.
  2. Lasse Frisgaard Gunnersen & Bo Sandemann Rasmussen, 2012. "Optimal Tax-Transfer Policies, Life-Cycle Labour Supply and Present-Biased Preferences," Economics Working Papers 2012-12, School of Economics and Management, University of Aarhus.
  3. Bastani, Spencer, 2013. "Using the Discrete Model to Derive Optimal Income Tax Rates," Working Paper Series, Center for Fiscal Studies 2013:11, Uppsala University, Department of Economics.
  4. Ooghe, Erwin & Peichl, Andreas, 2014. "Fair and efficent taxation under partial control," ZEW Discussion Papers 14-002, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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