IDEAS home Printed from https://ideas.repec.org/p/red/sed007/830.html
   My bibliography  Save this paper

Optimal Dynamic Taxation of Households: Insurance, Incentives and Commitment

Author

Listed:
  • Stefania Albanesi

    (Columbia University and NBER)

Abstract

This paper introduces households in a dynamic Mirrleesian economy and explores the resulting implications for optimal taxes. Households are modelled as a long run partnerships between two individuals. Each agent also in a long term relationship with the government, whose preferences are defined over individual utilities. Each individual is subject to an idiosyncratic privately observed skill shock. Partners do not have an informational advantage relative to the government, but they can pool income after the realization of their idiosyncratic shock. The fact that individuals are linked via the household structure introduces externalities in the relation between the government and each individual. The nature of these externalities depends on the process intra-household allocation. We examine two settings. In the first, partners have commitment. In the second, partners remain in the household only if their utility is greater than an outside option that depends on their history of shocks. We find that inter- and intratemporal distortions are greater than in the corresponding model without households in both cases, which implies that marginal asset and labor income taxes will be greater in absolute value. Instead, the properties of the distribution of individual and household consumption differ markedly in the two models. We study numerical examples to illustrate our findings.

Suggested Citation

  • Stefania Albanesi, 2007. "Optimal Dynamic Taxation of Households: Insurance, Incentives and Commitment," 2007 Meeting Papers 830, Society for Economic Dynamics.
  • Handle: RePEc:red:sed007:830
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2007/paper_830.pdf
    Download Restriction: no

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed007:830. 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: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.