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Intergenerationally Neutral Taxation

Christian Keuschnigg

Discussion Paper Serie A from University of Bonn, Germany

Abstract: The paper proposes a basic definition of intergenerational neutrality of fiscal policy in the life cycle model. The requirement of intergenerational neutrality imposes a restriction on the use of fiscal instruments that eliminates any welfare effects from intergenerational redistribution and thereby isolates the price effects of fiscal policy. This restriction endogenously determines a distribution of tax revenues in the form of transfers to young and old agents which ensures intergenerational neutrality. The endogenously determined share of tax revenues rebated to young and old agents is interpreted as the intergenerational incidence of the tax system. If revenues are not refunded to agents according to the intergenerational incidence of taxes, then redistribution in one or the other direction is installed. Hence, the derivation of intergenerationally neutral tax effects provides a benchmark for evaluating the redistributive content of an arbitrary fiscal program.

Keywords: Intergenerational tax incidence; intergenerational redistribution; intergenerationally neutral taxation (search for similar items in EconPapers)
Date: 1991-04
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More papers in Discussion Paper Serie A from University of Bonn, Germany Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany.
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