The effects of population aging on optimal redistributive taxes in an overlapping generations model
The impact of population aging on the steady state solution to a Ordover-Phelps (1979) overlapping generations optimal nonlinear income tax problem with two types of workers and quasilinear-in-leisure preferences is investigated. A decrease in the rate of population growth, which leads to an aging population, increases the relative price of consumption per person in retirement, which tends to decrease optimal consumption for retirees of both skill types. It is also shown that the optimal steady state rate of interest equals the rate of population growth. As a result, the steady state interest rate unambiguously declines when the rate of population growth declines. The resulting adjustments in production plans has an ambiguous effect on the aggregate wage rate. This article identifies factors contributing to an increase in the aggregate wage when the population ages, namely normality of consumption in retirement, complementarity between capital and labor in production, and a large capital deepening effect relative to the increase in dependency owing to demographic change. Depending on the sign of this wage effect, ambiguities may arise in the direction of change in the optimal steady state consumption and production plans. It is also shown that the optimal marginal income tax rates are independent of the rate of population growth.
|Date of creation:||25 Mar 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Berliant, Marcus & Ledyard, John, 2011.
"Optimal Dynamic Nonlinear Income Taxes with No Commitment,"
31749, University Library of Munich, Germany.
- Marcus Berliant & John O. Ledyard, 2014. "Optimal Dynamic Nonlinear Income Taxes with No Commitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(2), pages 196-221, 04.
- Marcus Berliant & John Ledyard, 2004. "Optimal Dynamic Nonlinear Income Taxes with No Commitment," Public Economics 0403004, EconWPA, revised 21 Jun 2005.
- Craig Brett & John A. Weymark, 2008.
"Public Good Provision And The Comparative Statics Of Optimal Nonlinear Income Taxation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 255-290, 02.
- Craig Brett & John A. Weymark, 2004. "Public Good Provision and the Comparative Statics of Optimal Nonlinear Income Taxation," Vanderbilt University Department of Economics Working Papers 0415, Vanderbilt University Department of Economics.
- Simula, Laurent, 2009.
"Optimal Nonlinear Income Tax and Nonlinear Pricing: Optimality Conditions and Comparative Static Properties,"
Working Paper Series, Center for Fiscal Studies
2009:11, Uppsala University, Department of Economics.
- Laurent Simula, 2010. "Optimal nonlinear income tax and nonlinear pricing: optimality conditions and comparative static properties," Social Choice and Welfare, Springer, vol. 35(2), pages 199-220, July.
- Dillen, M. & Lundholm, M., 1992.
"Dynamic Income Taxation, Redistribution, and the Ratchet Effect,"
1992-3, Uppsala - Working Paper Series.
- Dillen, Mats & Lundholm, Michael, 1996. "Dynamic income taxation, redistribution, and the ratchet effect," Journal of Public Economics, Elsevier, vol. 59(1), pages 69-93, January.
- Robin BOADWAY & Pierre PESTIEAU, 2006.
"Tagging and redistributive taxation,"
Annales d'Economie et de Statistique,
ENSAE, issue 83-84, pages 123-147.
- David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990.
"An Aging Society: Opportunity or Challenge?,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
- HAMILTON, Jonathan & PESTIEAU, Pierre, 2002.
"Optimal income taxation and the ability distribution: implications for migration equilibria,"
CORE Discussion Papers
2002036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Jonathan Hamilton & Pierre Pestieau, 2005. "Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria," International Tax and Public Finance, Springer, vol. 12(1), pages 29-45, January.
- Weymark, John A., 1986. "A reduced-form optimal nonlinear income tax problem," Journal of Public Economics, Elsevier, vol. 30(2), pages 199-217, July.
- Meijdam, A.C. & Verbon, H.A.A., 1995.
"Aging and Public Pensions in an Overlapping-Generations Model,"
1995-38, Tilburg University, Center for Economic Research.
- Meijdam, Lex & Verbon, Harrie A A, 1997. "Aging and Public Pensions in an Overlapping-Generations Model," Oxford Economic Papers, Oxford University Press, vol. 49(1), pages 29-42, January.
- Meijdam, A.C. & Verbon, H.A.A., 1997. "Aging and public pensions in an overlapping-generations model," Other publications TiSEM b93c8773-5708-434f-8386-6, Tilburg University, School of Economics and Management.
- Pirttila, Jukka & Tuomala, Matti, 2001. "On optimal non-linear taxation and public good provision in an overlapping generations economy," Journal of Public Economics, Elsevier, vol. 79(3), pages 485-501, March.
- Ordover, J. A. & Phelps, E. S., 1979. "The concept of optimal taxation in the overlapping-generations model of capital and wealth," Journal of Public Economics, Elsevier, vol. 12(1), pages 1-26, August.
- Craig Brett & John Weymark, 2007.
"The Impact of Changing Skill Levels on Optimal Nonlinear Income Taxes,"
Vanderbilt University Department of Economics Working Papers
0708, Vanderbilt University Department of Economics.
- Brett, Craig & Weymark, John A., 2008. "The impact of changing skill levels on optimal nonlinear income taxes," Journal of Public Economics, Elsevier, vol. 92(7), pages 1765-1771, July.
- Craig Brett & John Weymark, 2008. "Optimal Nonlinear Taxation of Income and Savings without Commitment," Vanderbilt University Department of Economics Working Papers 0805, Vanderbilt University Department of Economics.
- Boadway, Robin & Cuff, Katherine & Marchand, Maurice, 2000.
" Optimal Income Taxation with Quasi-linear Preferences Revisited,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 2(4), pages 435-60.
- Robin Boadway & Katherine Cuff & Maurice Marchand, 1999. "Optimal Income Taxation With Quasi-Linear Preferences Revisited," Working Papers 984, Queen's University, Department of Economics.
- Weymark, John A, 1987. "Comparative Static Properties of Optimal Nonlinear Income Taxes," Econometrica, Econometric Society, vol. 55(5), pages 1165-85, September.
- repec:cup:cbooks:9780521497695 is not listed on IDEAS
- Susan A. McDaniel, 2003. "Toward Disentangling Policy Implications of Economic and Demographic Changes in Canada's Aging Population," Canadian Public Policy, University of Toronto Press, vol. 29(4), pages 491-509, December.
- Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
- Laurent Simula, 2007. "Optimality conditions and comparative static properties of non-linear income taxes revisited," PSE Working Papers halshs-00588074, HAL.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:8585. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.