Optimal Taxation and Social Insurance in a Lifetime Perspective
AbstractAdvances in information technology have improved the administrative feasibility of redistribution based on lifetime earnings recorded at the time of retirement. We study optimal lifetime income taxation and social insurance in an economy in which redistributive taxation and social insurance serve to insure (ex ante) against skill heterogeneity as well as disability risk. Optimal disability benefits rise with previous earnings so that public transfers depend not only on current earnings but also on earnings in the past. Hence, lifetime taxation rather than annual taxation is optimal. The optimal tax-transfer system does not provide full disability insurance. By offering imperfect insurance and structuring disability benefits so as to enable workers to insure against disability by working harder, social insurance is designed to offset the distortionary impact of the redistributive labor income tax on labor supply.
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Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 06-01.
Length: 29 pages
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optimal lifetime income taxation; optimal social insurance;
Other versions of this item:
- Bovenberg, A.L. & Sorensen, P.B., 2007. "Optimal Taxation and Social Insurance in a Lifetime Perspective," Discussion Paper 2007-14, Tilburg University, Center for Economic Research.
- Lans Bovenberg & Peter Birch Sørensen, 2006. "Optimal Taxation and Social Insurance ina Lifetime Perspective," CESifo Working Paper Series 1690, CESifo Group Munich.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
- NEP-IAS-2006-03-18 (Insurance Economics)
- NEP-PBE-2006-03-18 (Public Economics)
- NEP-PUB-2006-03-18 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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