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Endogenous Longevity and Optimal Tax Progressivity

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  • Burkhard Heer
  • Stefan Rohrbacher

Abstract

We study the impact of endogenous longevity on optimal tax progressivity and inequality in an overlapping generations model with skill heterogeneity. Higher tax progressivity decreases both the longevity gap and net income inequality, but at the expense of lower average lifetime and lower aggregate labor supply and income. We find that the welfare-maximizing income tax is less progressive than in the case of exogenous longevity and that the present US income tax should redistribute less. Our result is robust to the empirically observed range of labor supply elasticity and the assumptions of both missing annuity markets and tax deductibility of private health expenditures.

Suggested Citation

  • Burkhard Heer & Stefan Rohrbacher, 2020. "Endogenous Longevity and Optimal Tax Progressivity," CESifo Working Paper Series 8691, CESifo.
    • Handle: RePEc:ces:ceswps:_8691
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    4. Johan Gustafsson, 2023. "Public pension policy and the equity–efficiency trade‐off," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(3), pages 717-752, July.
    5. Jung, Juergen & Tran, Chung, 2022. "Social health insurance: A quantitative exploration," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).

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    Keywords

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    JEL classification:

    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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