Optimal progressivity with age-dependent taxation

Jonathan Heathcote, Kjetil Storesletten and Giovanni L. Violante

Journal of Public Economics, 2020, vol. 189, issue C

Abstract: This paper studies optimal taxation of earnings when the degree of tax progressivity is allowed to vary with age. The setting is an overlapping-generations model that incorporates irreversible skill investment, flexible labor supply, ex ante heterogeneity in the disutility of work and the cost of skill acquisition, partially insurable wage risk, and a life cycle productivity profile. An analytically tractable version of the model without intertemporal trade is used to characterize and quantify the salient trade-offs in tax design. The key results are that progressivity should be U-shaped in age and that the average marginal tax rate should be increasing and concave in age. These findings are confirmed in a version of the model with borrowing and saving that we solve numerically.

Keywords: Tax progressivity; Life cycle; Income distribution; Skill iInvestment; Labor supply; Skill investment (search for similar items in EconPapers)
JEL-codes: D30 E20 H20 H40 J22 J24 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Optimal Progressivity with Age-Dependent Taxation (2019)
Working Paper: Optimal Progressivity with Age-Dependent Taxation (2019)
Working Paper: Optimal Progressivity with Age-Dependent Taxation (2018)
Working Paper: Optimal Progressivity with Age-Dependent Taxation (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:189:y:2020:i:c:s0047272719301355

DOI: 10.1016/j.jpubeco.2019.104074

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