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Increased Regressivity of the Optimal Capital Tax under a Welfare Constraint for Newborn Children

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  • Yosuke Furukawa

    (Kyoto University)

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    Abstract

    In this paper, we develop a three-period model that incorporates parents' heterogeneous skills and a welfare constraint for newborn children. Our numerical analysis shows how the optimal tax system is affected by the weight attached to the newborn child by a social planner. The main finding is that an increase in the guaranteed welfare level for newborn children makes the optimal capital income tax rate more regressive. This result is closely related to the trade-off between incentives for parents and insurance for the newborn child.

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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP846.pdf
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    Bibliographic Info

    Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 846.

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    Length: 18pages
    Date of creation: Jan 2013
    Date of revision:
    Handle: RePEc:kyo:wpaper:846

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    Keywords: Optimal taxation; intergenerational inequality; private information;

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    1. Narayana Kocherlakota, 2004. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Levine's Bibliography 122247000000000729, UCLA Department of Economics.
    2. Emmanuel Farhi & Iván Werning, 2007. "Inequality and Social Discounting," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 365-402.
    3. Stefania Albanesi & Christopher Sleet, 2006. "Dynamic Optimal Taxation with Private Information," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 1-30.
    4. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, Elsevier, vol. 28(1), pages 59-83, October.
    5. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 6(1-2), pages 55-75.
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