Increased Regressivity of the Optimal Capital Tax under a Welfare Constraint for Newborn Children

Yosuke Furukawa

No 846, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: In this paper, we develop a three-period model that incorporates parents' heterogeneous skills and a welfare constraint for newborn children. Our numerical analysis shows how the optimal tax system is affected by the weight attached to the newborn child by a social planner. The main finding is that an increase in the guaranteed welfare level for newborn children makes the optimal capital income tax rate more regressive. This result is closely related to the trade-off between incentives for parents and insurance for the newborn child.

Keywords: Optimal taxation; intergenerational inequality; private information (search for similar items in EconPapers)
JEL-codes: E22 E62 H21 (search for similar items in EconPapers)
Pages: 18pages
Date: 2013-01
New Economics Papers: this item is included in nep-cta, nep-mac, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:846

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