Redistributive Taxation in a Partial Insurance Economy
AbstractWe explore the optimal progressivity of the income tax system in an incomplete-markets model. Agents value private and public consumption and leisure, and are heterogeneous with respect to innate ability, idiosyncratic shock histories, and preferences. This heterogeneity generates a potential role for public insurance. Agents make education and labor supply choices, save in a risk-free bond, and are able to insure a subset of idiosyncratic risks privately. Equilibrium allocations and social welfare are characterized in closed form, which illuminates the various trade-offs in favor of more or less progressive taxation. In a calibration to the United States, we find that the actual US tax and transfer system is more progressive than the one that maximizes social welfare for a utilitarian planner.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 588.
Date of creation: 2012
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- Kjetil Storesletten & Giovanni L. Violante & Jonathan Heathcote, 2010. "Redistributive Taxation in a Partial-Insurance Economy," 2010 Meeting Papers 1124, Society for Economic Dynamics.
- NEP-ALL-2013-04-20 (All new papers)
- NEP-DGE-2013-04-20 (Dynamic General Equilibrium)
- NEP-IAS-2013-04-20 (Insurance Economics)
- NEP-PBE-2013-04-20 (Public Economics)
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