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Optimal Taxation in a Life-Cycle Model

Author

Listed:
  • Yvette Alvarez
  • John Burbidge
  • Ted Farrell
  • Leigh Palmer

Abstract

The authors extend Deaton's atemporal optimal commodity tax model to a life-cycle environment in which the individual may choose to work in many periods. The authors are able to confirm the Corlett-Hague intuition--goods that are more complementary with leisure should be taxed at higher rates. In addition, they prove that, in the microeconomic framework underlying some popular general-equilibrium models, if real wage and interest rates are constant over the life cycle, the addition of some interest taxation to a consumption tax regime would be welfare improving and that optimal labor tax rates decline with age. Coauthors are John Burbidge, Ted Farrell, and Leigh Palmer.

Suggested Citation

  • Yvette Alvarez & John Burbidge & Ted Farrell & Leigh Palmer, 1992. "Optimal Taxation in a Life-Cycle Model," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 111-122, February.
    • Handle: RePEc:cje:issued:v:25:y:1992:i:1:p:111-22
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    Citations

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    Cited by:

    1. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August.
    2. Papageorgiou, Yorgos Y. & Pines, David, 2000. "Externalities, Indivisibility, Nonreplicability, and Agglomeration," Journal of Urban Economics, Elsevier, vol. 48(3), pages 509-535, November.
    3. Cagri S. Kumru & John Piggott, 2017. "Optimal Capital Income Taxation with Means-tested Benefits," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(3), pages 227-262, July.
    4. Gerhard Glomm & Juergen Jung, 2013. "The Timing of Redistribution," Southern Economic Journal, John Wiley & Sons, vol. 80(1), pages 50-80, July.
    5. Panousi, Vasia, 2009. "Capital Taxation with Entrepreneurial Risk," MPRA Paper 24237, University Library of Munich, Germany.
    6. Alok Johri & Bidyut Talukdar, 2023. "Organizational capital and optimal Ramsey taxation," Indian Economic Review, Springer, vol. 58(1), pages 193-210, July.
    7. Alexander Ludwig & Dirk Krueger, 2015. "Optimal Capital and Progressive Labor Income Taxation with Endogenous Schooling Decisions and Intergenerational Transfers," 2015 Meeting Papers 334, Society for Economic Dynamics.
    8. Woodland, A., 2016. "Taxation, Pensions, and Demographic Change," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 713-780, Elsevier.
    9. Krueger, Dirk & Ludwig, Alexander, 2013. "On the Optimal Provision of Social Insurance," MEA discussion paper series 201302, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    10. Krueger, Dirk & Ludwig, Alexander, 2016. "On the optimal provision of social insurance: Progressive taxation versus education subsidies in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 72-98.
    11. Alexander Ludwig & Dirk Krueger, 2010. "Optimal Progressive Taxation and Education Subsidies in a Model of Endogenous Human Capital Formation," 2010 Meeting Papers 388, Society for Economic Dynamics.
    12. Gerhard Glomm & Juergen Jung, 2013. "The Timing of Redistribution," Southern Economic Journal, Southern Economic Association, vol. 80(1), pages 50-80, July.
    13. Robin Boadway & David Wildasin, 1994. "Taxation and savings: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 15(3), pages 19-63, August.
    14. Andres Erosa & Martin Gervais, 2001. "Optimal taxation in infinitely-lived agent and overlapping generations models : a review," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 23-44.
    15. Chung Tran & Sebastian Wende, 2020. "Incidence of Capital Income Taxation in a Lifecycle Economy with Firm Heterogeneity," ANU Working Papers in Economics and Econometrics 2019-670, Australian National University, College of Business and Economics, School of Economics.
    16. Peña, Guillermo, 2021. "Leisure as a complement of banking: Taxing financial services for reducing leisure time?," MPRA Paper 109942, University Library of Munich, Germany.
    17. Stephen Mccafferty, 1997. "Optimal Capital Taxation and Debt Policy in a Finite-Horizon Macro Model," Public Finance Review, , vol. 25(6), pages 577-600, November.
    18. Max Franks & Ottmar Edenhofer, 2020. "Optimal Redistributive Wealth Taxation When Wealth Is More Than Just Capital," CESifo Working Paper Series 8093, CESifo.
    19. J.B. Burbidge, 2001. "Awkward Moments in Teaching Public Finance," Department of Economics Working Papers 2001-01, McMaster University.

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