Quantifying the Welfare Gains From Flexible Dynamic Income Tax Systems
AbstractThis paper sets up an overlapping generations general equilibrium model with incomplete markets similar to Conesa, Kitao, and Krueger's (2009) and uses it to simulate a policy reform which replaces an optimal flat tax with an optimal non-linear tax that is allowed to be arbitrarily age and history dependent. The reform shifts labor supply toward productive households and thereby increases aggregate productivity. This leads to higher per capita consumption and shorter per capita hours. Under a utilitarian social welfare function that places equal weight on all current and future cohorts, the implied welfare gain is worth more than 10% in lifetime consumption equivalents.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 410.
Date of creation: 2010
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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