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Optimal redistribution: A life-cycle perspective

  • Michau, Jean-Baptiste

In this paper, I characterize the optimal redistribution policy in a simple life-cycle framework with both an intensive and an extensive margin of labor supply. The extensive margin corresponds to the choice of a retirement age. The optimal allocation cannot be implemented in a decentralized economy by a standard non-linear income tax alone. It can however be implemented by a history-dependent social security system which redistributes resources across agents. A calibration of the model to the U.S. economy reveals that the retirement age should optimally be sharply increasing in productivity and that implementing the optimal life-cycle redistribution policy can generate large social welfare gains.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 111 (2014)
Issue (Month): C ()
Pages: 1-16

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Handle: RePEc:eee:pubeco:v:111:y:2014:i:c:p:1-16
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