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Increased Regressivity of the Optimal Capital Tax under a Welfare Constraint for Newborn Children

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  • Yosuke Furukawa

    (Kyoto University)

Abstract

In this paper, we develop a three-period model that incorporates parents' heterogeneous skills and a welfare constraint for newborn children. Our numerical analysis shows how the optimal tax system is affected by the weight attached to the newborn child by a social planner. The main finding is that an increase in the guaranteed welfare level for newborn children makes the optimal capital income tax rate more regressive. This result is closely related to the trade-off between incentives for parents and insurance for the newborn child.

Suggested Citation

  • Yosuke Furukawa, 2013. "Increased Regressivity of the Optimal Capital Tax under a Welfare Constraint for Newborn Children," KIER Working Papers 846, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:846
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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP846.pdf
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    References listed on IDEAS

    as
    1. Emmanuel Farhi & Iván Werning, 2010. "Progressive Estate Taxation," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 635-673.
    2. Narayana R. Kocherlakota, 2005. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Econometrica, Econometric Society, vol. 73(5), pages 1587-1621, September.
    3. Emmanuel Farhi & Iván Werning, 2007. "Inequality and Social Discounting," Journal of Political Economy, University of Chicago Press, vol. 115, pages 365-402.
    4. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, pages 59-83.
    5. Stefania Albanesi & Christopher Sleet, 2006. "Dynamic Optimal Taxation with Private Information," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 1-30.
    6. Narayana R. Kocherlakota, 2010. "The New Dynamic Public Finance," Economics Books, Princeton University Press, edition 1, number 9222, June.
    7. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
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    More about this item

    Keywords

    Optimal taxation; intergenerational inequality; private information;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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