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Social discounting, migration, and optimal taxation of savings

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  • Valeria De Bonis
  • Luca Spataro

Abstract

We study the problem of optimal inheritance and capital income taxation in an economy with migration. We find that, contrary to previous studies on OLG models, even if the utility function is assumed to be homothetic and separable in consumption and leisure, a non-zero tax result emerges whenever the policy maker attaches weights to the individual utility functions in the social welfare function that are allowed to vary through time, for example, according to the demographic dynamics of the economy. We also perform a welfare analysis of the choice among different social weights: the results depend on several factors, among which the extent of the distortions induced by the tax instruments vis-à-vis the suboptimality of the market allocation in an OLG economy, deriving from the disconnection among generations. Copyright 2010 Oxford University Press 2009 All rights reserved, Oxford University Press.

Suggested Citation

  • Valeria De Bonis & Luca Spataro, 2010. "Social discounting, migration, and optimal taxation of savings," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 603-623, July.
  • Handle: RePEc:oup:oxecpp:v:62:y:2010:i:3:p:603-623
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    File URL: http://hdl.handle.net/10.1093/oep/gpp032
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    References listed on IDEAS

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    1. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August.
    2. Ivan Werning & Emmanuel Farhi, 2005. "Inequality, Social Discounting and Estate Taxation," 2005 Meeting Papers 358, Society for Economic Dynamics.
    3. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151, May.
    4. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    5. Judd, Kenneth L., 1999. "Optimal taxation and spending in general competitive growth models," Journal of Public Economics, Elsevier, vol. 71(1), pages 1-26, January.
    6. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-549, September.
    7. Andres Erosa & Martin Gervais, 2001. "Optimal taxation in infinitely-lived agent and overlapping generations models : a review," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 23-44.
    8. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    9. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    10. De Bonis, Valeria & Spataro, Luca, 2005. "Taxing Capital Income As Pigouvian Correction: The Role Of Discounting The Future," Macroeconomic Dynamics, Cambridge University Press, vol. 9(04), pages 469-477, September.
    11. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-293, June.
    12. Valeria De Bonis & Luca Spataro, 2004. "Recent Developments in Dynamic Capital Income Taxation Theory: A Review," Economia politica, Società editrice il Mulino, issue 2, pages 269-298.
    13. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
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    Cited by:

    1. Valeria De Bonis, 2016. "Innovation, competition and public procurement in the pre-commercial phase," Public Finance Research Papers 23, Istituto di Economia e Finanza, DIGEF, Sapienza University of Rome.
    2. Spataro, Luca & Renström, Thomas I., 2012. "Optimal taxation, critical-level utilitarianism and economic growth," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 727-738.

    More about this item

    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

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