A rational, economic model of paygo tax rates
George de Menil (),
Fabrice Murtin (),
Eytan Sheshinski () and
European Economic Review, 2016, vol. 89, issue C, 55-72
We argue that paygo rates are determined by a representative agent and a benevolent government jointly maximizing the expected life-time utility of the agent. The distributions of labor and capital income are calculated from national data on real GDP, real wages and the real return to capital since 1950. With uniform risk aversion, predicted rates explain 83% of the variance of observed rates. The globalization of capital markets would lead to convergence of paygo rates. Our results are immune to crises like 2008.
Keywords: Paygo; Savings; Risk aversion; OLG; National capital markets (search for similar items in EconPapers)
JEL-codes: C15 D81 D91 H55 (search for similar items in EconPapers)
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Working Paper: A Rational Economic Model of Paygo Tax Rates (2016)
Working Paper: A Rational Economic Model of Paygo Tax Rates (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:89:y:2016:i:c:p:55-72
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