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Optimal Capital Income Taxation with Means-tested Benefits

Author

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  • Cagri Seda Kumru

    () (Research School of Economics, The Australian National University and ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

  • John Piggott

    () (ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

Abstract

This paper studies the interaction between capital income taxation and a means tested age pension in the context of an overlapping generations model, calibrated to the UK economy. Recent literature has suggested a rehabilitation of capital income taxation (Conesa et al. (2009)), predicated on the idea that capital is a complement with retirement leisure. This leads naturally to the conjecture that a publicly funded age pension contingent upon holdings of capital or capital income may have a similar effect. We formalize this using a stochastic OLG model with multiple individuals differentiated by labour productivity and pension entitlement. Our preliminary findings suggest that a means tested pension has effects similar to capital income taxation in a life-cycle context.

Suggested Citation

  • Cagri Seda Kumru & John Piggott, 2012. "Optimal Capital Income Taxation with Means-tested Benefits," Working Papers 201215, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
  • Handle: RePEc:asb:wpaper:201215
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    File URL: http://cepar.edu.au/media/80539/wp_13_optimal_capital.pdf
    File Function: First version, 2012
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    References listed on IDEAS

    as
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    Cited by:

    1. Hans Fehr & Fabian Kindermann, 2012. "Optimal Taxation with Current and Future Cohorts," CESifo Working Paper Series 3973, CESifo Group Munich.
    2. George Kudrna, 2015. "Means Testing of Public Pensions: The Case of Australia," Working Papers wp338, University of Michigan, Michigan Retirement Research Center.
    3. repec:eee:joecag:v:7:y:2016:i:c:p:17-29 is not listed on IDEAS

    More about this item

    Keywords

    Dynamic general equilibrium; taxation; welfare;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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