THE WELFARE GAINS OF AGE‐RELATED OPTIMAL INCOME TAXATION

Spencer Bastani, Sören Blomquist and Luca Micheletto

International Economic Review, 2013, vol. 54, issue 4, 1219-1249

Abstract: Using an overlapping generations model with skill uncertainty and private savings, we quantify the gains of age‐dependent labor income taxation. The total steady‐state welfare gain of switching from age‐independent to age‐dependent nonlinear taxation varies between 2.4% and 4% of GDP. Part of the gain descends from relaxing incentive–compatibility constraints and part is due to capital‐accumulation effects. The welfare gain is of about the same magnitude as that which can be achieved by moving from linear to nonlinear income taxation. Finally, the welfare loss from tax‐exempting interest income is negligible under an optimal age‐dependent labor income tax.

Date: 2013
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https://doi.org/10.1111/iere.12034

Related works:
Working Paper: The Welfare Gains of Age Related Optimal Income Taxation (2010)
Working Paper: The Welfare Gains of Age Related Optimal Income Taxation (2010)
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