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Quantifying the Welfare Gains From Flexible Dynamic Income Tax Systems

Author

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  • Kenichi Fukushima

    (University of Minnesota and FRB Minneapolis)

Abstract

This paper sets up an overlapping generations general equilibrium model with incomplete markets similar to Conesa, Kitao, and Krueger's (2009) and uses it to simulate a policy reform which replaces an optimal flat tax with an optimal non-linear tax that is allowed to be arbitrarily age and history dependent. The reform shifts labor supply toward productive households and thereby increases aggregate productivity. This leads to higher per capita consumption and shorter per capita hours. Under a utilitarian social welfare function that places equal weight on all current and future cohorts, the implied welfare gain is worth more than 10% in lifetime consumption equivalents.

Suggested Citation

  • Kenichi Fukushima, 2010. "Quantifying the Welfare Gains From Flexible Dynamic Income Tax Systems," 2010 Meeting Papers 410, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:410
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    Cited by:

    1. Cagri S. Kumru & John Piggott, 2017. "Optimal Capital Income Taxation with Means-tested Benefits," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(3), pages 227-262, July.
    2. Piero Gottardi & Atsushi Kajii & Tomoyuki Nakajima, 2010. "Optimal taxation and constrained inefficiency in an infinite-horizon economy with incomplete markets," KIER Working Papers 745, Kyoto University, Institute of Economic Research.
    3. Maxim Troshkin & Aleh Tsyvinski & Mikhail Golosov, 2010. "Optimal Dynamic Taxes," 2010 Meeting Papers 320, Society for Economic Dynamics.
    4. Krueger, Dirk & Ludwig, Alexander, 2013. "On the Optimal Provision of Social Insurance," MEA discussion paper series 201302, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    5. Ales, Laurence & Maziero, Pricila, 2016. "Non-exclusive dynamic contracts, competition, and the limits of insurance," Journal of Economic Theory, Elsevier, vol. 166(C), pages 362-395.
    6. Mikhail Golosov & Maxim Troshkin & Aleh Tsyvinski, 2016. "Redistribution and Social Insurance," American Economic Review, American Economic Association, vol. 106(2), pages 359-386, February.

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