Optimal Dynamic Taxes

Mikhail Golosov, Maxim Troshkin and Aleh Tsyvinski

No 17642, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study optimal labor and savings distortions in a lifecycle model with idiosyncratic shocks. We show a tight connection between its recursive formulation and a static Mirrlees model with two goods, which allows us to derive elasticity-based expressions for the dynamic optimal distortions. We derive a generalization of a savings distortion for non-separable preferences and show that, under certain conditions, the labor wedge tends to zero for sufficiently high skills. We estimate skill distributions using individual data on the U.S. taxes and labor incomes. Computed optimal distortions decrease for sufficiently high incomes and increase with age.

JEL-codes: E62 H21 H24 H31 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pub
Note: EFG PE
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Citations: View citations in EconPapers (38)

Published as "Optimal Taxation: Merging Micro and Macro Approaches" (with M. Troshkin and A. Tsyvinski), Journal of Money, Credit and Banking, Supplement to 43 (5), (2011): 147-174

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Related works:
Working Paper: Optimal Dynamic Taxes (2012)
Working Paper: Optimal Dynamic Taxes (2010)
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