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The Welfare Gains Of Age‐Related Optimal Income Taxation

Listed author(s):
  • SPENCER BASTANI
  • SÖREN BLOMQUIST
  • LUCA MICHELETTO

Using a calibrated overlapping generations model we quantify the welfare gains of an age dependent income tax. Agents face uncertainty regarding future abilities and can by saving transfer consumption across periods. The welfare gain of switching from an age-independent to an age-dependent nonlinear tax amounts in our benchmark model to around three percent of GDP. The gains are particularly high when there are restrictions on debt policy. The gains of using a nonlinear- as opposed to a linear tax are even larger. Surprisingly, it is of secondary importance to optimally choose the tax on interest income.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1111/iere.2013.54.issue-4
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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 54 (2013)
Issue (Month): (November)
Pages: 1219-1249

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Handle: RePEc:wly:iecrev:v:54:y:2013:i::p:1219-1249
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