Quantifying the Welfare Gains from Flexible Dynamic Income Tax Systems

Kenichi Fukushima

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

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 at 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 a large increase in per capita consumption and a moderate increase in per capita hours. Under a utilitarian social welfare function that places equal weight on all current and future cohorts, the implied welfare gain amounts to more than 10% in lifetime consumption equivalents.

Date: 2011-03
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:hst:ghsdps:gd10-176

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