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Optimal redistribution: A life-cycle perspective

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  • Michau, Jean-Baptiste

Abstract

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.

Suggested Citation

  • Michau, Jean-Baptiste, 2014. "Optimal redistribution: A life-cycle perspective," Journal of Public Economics, Elsevier, vol. 111(C), pages 1-16.
  • Handle: RePEc:eee:pubeco:v:111:y:2014:i:c:p:1-16
    DOI: 10.1016/j.jpubeco.2013.12.010
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    References listed on IDEAS

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    Cited by:

    1. Philippe Choné & Guy Laroque, 2014. "Income tax and retirement schemes," Working Papers hal-01070554, HAL.
    2. Shantanu Bagchi, 2016. "Differential Mortality and the Progressivity of Social Security," Working Papers 2016-03, Towson University, Department of Economics, revised Aug 2016.
    3. Bielecki, Marcin & Goraus, Karolina & Hagemejer, Jan & Makarski, Krzysztof & Tyrowicz, Joanna, 2015. "Small assumptions (can) have a large bearing: evaluating pension system reforms with OLG models," Economic Modelling, Elsevier, vol. 48(C), pages 210-221.
    4. repec:spr:sochwe:v:50:y:2018:i:3:d:10.1007_s00355-017-1094-0 is not listed on IDEAS

    More about this item

    Keywords

    Extensive margin; Optimal redistribution; Retirement age; Social security;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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