A Rational Economic Model of Paygo Tax Rates
Eytan Sheshinski (),
Fabrice Murtin (),
George de Menil () and
Murtin T. Yokossi
MPRA Paper from University Library of Munich, Germany
We argue that paygo rates are determined by a representative agent and a benevolent government jointly maximizing the expected life-time utility of the agent. The distributions of labor and capital income are calculated from national data on real GDP, real wages and the real return to capital since 1950. With uniform risk aversion, predicted rates explain 83% of the variance of observed rates. The globalization of capital markets would lead to convergence of paygo rates. Our results are immune to crises like 2008.
Keywords: Paygo; Savings; Risk Aversion; OLG; National Capital Markets (search for similar items in EconPapers)
JEL-codes: H0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pub and nep-upt
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Journal Article: A rational, economic model of paygo tax rates (2016)
Working Paper: A Rational Economic Model of Paygo Tax Rates (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72034
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