Singles, couples, time-averaging, and taxation

Hans Holter, Lars Ljungqvist, Thomas Sargent and Serhiy Stepanchuk

Journal of Monetary Economics, 2025, vol. 150, issue C

Abstract: We study consequences of tax reforms in an incomplete markets overlapping generations model in which male and female workers with different ability levels self-insure by acquiring a risk-free bond, “time-averaging” their life-cycle work schedules and career lengths, and possibly by marrying and divorcing. We study incidences of a flat-rate tax and in combination with stylized versions of a negative income tax (NIT) or an earned income tax credit (EITC). Tax reforms have diverse effects that differ by workers’ abilities, marital statuses, and ages. A new “ex post-ex ante” criterion helps us to sort through welfare incidences. The importance of labor supply responses at the extensive margin makes the EITC better for redistribution than the NIT.

Keywords: Heterogeneous households; Precautionary saving; Labor supply; Time-averaging; Social security; Flat-rate tax; Negative income tax; EITC (search for similar items in EconPapers)
JEL-codes: E62 H20 H31 H53 H55 J21 J22 J26 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:150:y:2025:i:c:s0304393224001557

DOI: 10.1016/j.jmoneco.2024.103702

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