Optimal Age Specific Income Taxation
AbstractThis paper studies optimal earnings taxation in a three-period life-cycle model where taxes can be differentiated according to age. Agents choose their level of education when young and their retirement age when old. I study the problem both without and with borrowing constraints. It is shown that, without borrowing constraints, a first-best optimum can be decentralized by setting a zero tax rate in the third period and a first-period tax lower than the second-period one. With borrowing constraints, the first best can no longer be achieved. The gap between the first- and second-period tax rates is larger, while the third-period tax rate is generally different from zero. Copyright 2006 Blackwell Publishing, Inc..
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Bibliographic InfoPaper provided by University of Toulouse 1 Capitole in its series Open Access publications from University of Toulouse 1 Capitole with number http://neeo.univ-tlse1.fr/305/.
Date of creation: Oct 2006
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Publication status: Published in Journal of Public Economic Theory (2006-10) v.8, p.697-711
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