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Optimal linear redistributive tax and pension systems with flexible labor supply

Author

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  • Andras Simonovits

    () (Institute of Economics, Research Center for Economic and Regional Studies,)

Abstract

The tax system redistributes labor incomes among workers, the pension system redistributes incomes from workers to pensioners. We consider a linear transfer system, where workers pay pension contributions and personal income taxes and pensioners receive proportional benefits, while workers and pensioners enjoy basic income. Every worker maximizes his discounted lifetime utility function, depending on young- and old-age consumption plus leisure. The government chooses a transfer system which maximizes the undiscounted social welfare function. Our major result is as follows: The optimal transfer system balances the efficiency of proportional pensions and the guarantee of the basic income.

Suggested Citation

  • Andras Simonovits, 2012. "Optimal linear redistributive tax and pension systems with flexible labor supply," IEHAS Discussion Papers 1233, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  • Handle: RePEc:has:discpr:1233
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    File URL: http://econ.core.hu/file/download/mtdp/MTDP1233.pdf
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    References listed on IDEAS

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    1. Richard Disney, 2004. "Are contributions to public pension programmes a tax on employment?," Economic Policy, CEPR;CES;MSH, vol. 19(39), pages 267-311, July.
    2. James Sefton & Justin vandeVen & Martin Weale, 2008. "Means Testing Retirement Benefits: fostering equity or discouraging savings?," Economic Journal, Royal Economic Society, vol. 118(528), pages 556-590, April.
    3. Andras Simonovits, 2012. "Means-tested or Flat Pension? Pension Credit," IEHAS Discussion Papers 1221, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    4. Andersen, Torben M., 2012. "Fiscal sustainability and demographics – Should we save or work more?," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 264-280.
    5. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    6. Andras Simonovits, 2009. "Underreported earnings and age-specific income redistribution in post-socialist economies," IEHAS Discussion Papers 0927, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
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    Cited by:

    1. Andras Simonovits, 2013. "A family of simple paternalistic transfer models," IEHAS Discussion Papers 1324, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

    More about this item

    Keywords

    personal income tax; pension system; optimal redistribution;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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