Gorry, Aspen and Oberfield, Ezra (2010): Optimal Taxation over the Life Cycle.
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We derive the optimal labor income tax schedule for a life cycle model with deterministic productivity variation and complete asset markets. An individual chooses whether and how much to work at each date. The government must finance a given expenditure and does not have access to lump sum taxation. We develop a solution method that combines incentive constraints into a single implementability constraint. The average tax rate determines when an individual will work while the marginal tax rate determines how much she will work. The optimal tax schedule has an increasing average tax rate at low levels of income to encourage labor market participation, even in the absence of redistributive concerns. In contrast to the Mirrleesian optimal taxation literature, the marginal tax rate at the top is strictly positive.
|Item Type:||MPRA Paper|
|Original Title:||Optimal Taxation over the Life Cycle|
|Keywords:||Optimal Taxation; Life Cycle; Mirrlees|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
|Depositing User:||Aspen Gorry|
|Date Deposited:||23. Sep 2010 15:23|
|Last Modified:||16. Feb 2013 04:17|
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