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Tax buyouts

  • Marco Del Negro
  • Fabrizio Perri
  • Fabiano Schivardi

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 distributions. 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.nber.org/papers/w15847.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15847.

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Date of creation: Mar 2010
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Publication status: published as Del Negro, Marco & Perri, Fabrizio & Schivardi, Fabiano, 2010. "Tax buyouts," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 576-595, July.
Handle: RePEc:nbr:nberwo:15847
Note: EFG PE
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  16. Martin Feldstein, 1995. "Behavioral Responses to Tax Rates: Evidence from TRA86," NBER Working Papers 5000, National Bureau of Economic Research, Inc.
  17. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
  18. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  19. Alberto Alesina & Philippe Weil, 1992. "Menus of Linear Income Tax Schedules," NBER Working Papers 3968, 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.
  21. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2008. "The Macroeconomic Implications of Rising Wage Inequality in the United States," NBER Working Papers 14052, National Bureau of Economic Research, Inc.
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