Does it pay to work?

Jagadeesh Gokhale, Laurence Kotlikoff and Oleksiy Sluchynsky ()

No 206, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: Does it pay to work? This is a tough question because of the complexity of the tax code and the plethora of dynamic linkages involved: 1) Earning more today typically alters current saving and, therefore, future capital income taxes. 2) Earning more today generally alters future consumption and, therefore, future consumption taxes. 3) Changing future levels of income and assets changes the eligibility for and levels received of income- and asset-tested transfer benefits. 4) The most important transfer program, Social Security, explicitly links future transfer payments to current earnings. 5) Income taxes in retirement depend on past earnings because Social Security benefits, which are subject to federal income taxation, depend on past earnings. This paper attempts to capture the net effective tax on work by using an intertemporal model capable of carefully determining tax and transfer payments at each stage of the life cycle.

Keywords: Income tax; Social security (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (9)

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DOI: 10.26509/frbc-wp-200206

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