Redistribution with Unequal Life Expectancy

Sebastian Koehne

No 10684, CESifo Working Paper Series from CESifo

Abstract: This paper introduces life expectancy inequality into a tractable Mirrleesian life-cycle model and characterizes the optimal income tax policy using theory and calibration. A positive association between life expectancy and income counteracts the well-known static pattern of declining marginal utility. As a result, the mechanical value of redistribution is reduced at all income levels. Moreover, the pension wedge becomes a novel determinant of optimal taxation, motivating relatively lower optimal tax rates for low earners and relatively higher optimal tax rates for high earners. Quantitatively, the effects of the mechanical value of redistribution dominate, and the optimal marginal tax rates fall by up to 10 percentage points when life expectancy is heterogeneous.

Keywords: optimal taxation; redistribution; life expectancy; inequality (search for similar items in EconPapers)
JEL-codes: D82 H21 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-age, nep-dem, nep-pbe, nep-pub and nep-upt
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp10684.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10684

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().