Optimal Dynamic Taxes

Mikhail Golosov, Maxim Troshkin and Aleh Tsyvinski
Additional contact information
Maxim Troshkin: Yale University and University of Minnesota (Email:maxim.troshkin@yale.edu)

No 12-E-01, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: We study optimal labor and savings distortions in a lifecycle model with idiosyncratic shocks. We show a tight connection between its recursive formulation and a static Mirrlees model with two goods, which allows us to derive elasticity-based expressions for the dynamic optimal distortions. We derive a generalization of a savings distortion for non- separable preferences and show that, under certain conditions, the labor wedge tends to zero for sufficiently high skills. We estimate skill distributions using individual data on the U.S. taxes and labor incomes. Computed optimal distortions decrease for sufficiently high incomes and increase with age.

Keywords: Optimal taxation; Efficiency; Optimal Social insurance (search for similar items in EconPapers)
JEL-codes: D82 E62 H21 H23 (search for similar items in EconPapers)
Date: 2012-02
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Optimal Dynamic Taxes (2011)
Working Paper: Optimal Dynamic Taxes (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:12-e-01

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