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Social discounting, migration, and optimal taxation of savings

  • Valeria De Bonis
  • Luca Spataro

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.

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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 62 (2010)
Issue (Month): 3 (July)
Pages: 603-623

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Handle: RePEc:oup:oxecpp:v:62:y:2010:i:3:p:603-623
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  1. Andrés Erosa & Martin Gervais, 1998. "Optimal Taxation in Life-Cycle Economies," UWO Department of Economics Working Papers 9812, University of Western Ontario, Department of Economics.
  2. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
  3. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  4. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June.
  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. repec:cup:cbooks:9780521001151 is not listed on IDEAS
  7. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  8. repec:cup:cbooks:9780521806428 is not listed on IDEAS
  9. Emmanuel Farhi & Ivan Werning, 2005. "Inequality, Social Discounting and Estate Taxation," NBER Working Papers 11408, National Bureau of Economic Research, Inc.
  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. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-49, September.
  12. 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.
  13. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
  14. De Bonis Valeria & Spataro Luca, 2004. "Recent Developments in Dynamic Capital Income Taxation Theory: A Review," Economia politica, Società editrice il Mulino, issue 2, pages 269-298.
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