Age-Targeted Income Taxation, Labor Supply, and Retirement

Johan Gustafsson ()
Additional contact information
Johan Gustafsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan

No 985, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper studies the life-cycle effects of favorable marginal tax treatment of older workers on their optimal life-cycle labor supply, retirement timing, and savings. I develop a structural model in continuous time where the life cycle of a representative agent is divided into three distinct phases: pre-treatment, post-treatment, and retirement. Solutions for consumption/savings, labor supply/leisure, and retirement timing are then obtained by solving the model as a salvage value problem. I then calibrate the model to Swedish earnings data and find that the increased extensive margin labor supply is partially offset by a reduction in hours worked during the pre-treatment period. The total effect is however an increase in life-cycle labor supply and consumption.

Keywords: Retirement age; life cycle; tax heterogeneity; savings; consumption; leisure (search for similar items in EconPapers)
JEL-codes: D15 J22 J26 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2021-02-04, Revised 2021-03-01
New Economics Papers: this item is included in nep-age, nep-dge, nep-lma, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.usbe.umu.se/ues/ues985.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0985

Access Statistics for this paper

More papers in Umeå Economic Studies from Umeå University, Department of Economics Department of Economics, Umeå University, S-901 87 Umeå, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by David Skog ().