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Tax Buyouts

  • Marco Del Negro

    (Federal Reserve Bank of New York)

  • Fabrizio Perri

    (University of Minnesota. FRB of Minneapolis, CEPR and NBER)

  • Fabiano Schivardi

    (University of Cagliari, EIEF and CEPR)

The paper studies a fiscal policy instrument that can reduce fiscal distortions without affecting revenues, in a politically viable way. The instrument is a private contract (tax buyout), offered by the government to each citizen, whereby the citizen can choose to pay a fixed price in exchange for a given reduction in her tax rate for a period of time. We introduce the tax buyout in a dynamic overlapping generations economy, calibrated to match several features of the US income, taxes and wealth distribution. Under simple pricing, the introduction of the buyout is revenue neutral but, by reducing distortions,it benefits a significant fraction of the population and leads to sizable increases in aggregate labor supply, income and consumption.

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File URL: http://www.eief.it/files/2012/09/wp-07-tax-buyouts.pdf
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Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 1007.

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Length: 42 pages
Date of creation: 2010
Date of revision: Mar 2010
Handle: RePEc:eie:wpaper:1007
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  2. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 205-29, January.
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  15. Luisa Fuster & Gueorgui Kambourov & Andres Erosa, 2008. "The Heterogeneity and Dynamics of Individual Labor Supply over the Life-Cycle: Facts and Theory," 2008 Meeting Papers 529, Society for Economic Dynamics.
  16. Kenichi Fukushima, 2010. "Quantifying the Welfare Gains From Flexible Dynamic Income Tax Systems," 2010 Meeting Papers 410, Society for Economic Dynamics.
  17. Gouveia, Miguel & Strauss, Robert P., 1994. "Effective Federal Individual Tax Functions: An Exploratory Empirical Analysis," National Tax Journal, National Tax Association, vol. 47(2), pages 317-39, June.
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  19. Martin Feldstein, 1995. "Behavioral Responses to Tax Rates: Evidence from TRA86," NBER Working Papers 5000, National Bureau of Economic Research, Inc.
  20. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc.
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