Age-Targeted Income Taxation, Labor Supply, and Retirement

Johan Gustafsson

No 8988, CESifo Working Paper Series from CESifo

Abstract: This paper studies the life-cycle effects of favorable marginal tax treatment of older workers on their optimal life cycle labor supply, retirement timing, and savings. I develop a structural model in continuous time where the life-cycle of a representative agent is divided into three distinct phases: pre-treatment, post-treatment, and retirement. Solutions for consumption/savings, labor supply/leisure, and retirement timing are then obtained by solving the model as a salvage value problem. I then calibrate the model to Swedish earnings data and find that the increased extensive margin labor supply is partially offset by a reduction in hours worked during the pre-treatment period. The total effect is however an increase in life-cycle labor supply and consumption.

Keywords: retirement age; life cycle; tax heterogeneity; savings consumption; leisure (search for similar items in EconPapers)
JEL-codes: D15 J22 J26 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-age, nep-dge, nep-lma, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8988

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