Optimal Taxation in a Life-Cycle Model

Yvette Alvarez, John Burbidge, Ted Farrell and Leigh Palmer

Canadian Journal of Economics, 1992, vol. 25, issue 1, 111-22

Abstract: The authors extend Deaton's atemporal optimal commodity tax model to a life-cycle environment in which the individual may choose to work in many periods. The authors are able to confirm the Corlett-Hague intuition--goods that are more complementary with leisure should be taxed at higher rates. In addition, they prove that, in the microeconomic framework underlying some popular general-equilibrium models, if real wage and interest rates are constant over the life cycle, the addition of some interest taxation to a consumption tax regime would be welfare improving and that optimal labor tax rates decline with age. Coauthors are John Burbidge, Ted Farrell, and Leigh Palmer.

Date: 1992
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