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Singles, couples, time-averaging, and taxation

Author

Listed:
  • Holter, Hans A.
  • Ljungqvist, Lars
  • Sargent, Thomas J.
  • Stepanchuk, Serhiy

Abstract

We study consequences of tax reforms in an incomplete markets overlapping generations model in which male and female workers with different ability levels self-insure by acquiring a risk-free bond, “time-averaging” their life-cycle work schedules and career lengths, and possibly by marrying and divorcing. We study incidences of a flat-rate tax and in combination with stylized versions of a negative income tax (NIT) or an earned income tax credit (EITC). Tax reforms have diverse effects that differ by workers’ abilities, marital statuses, and ages. A new “ex post-ex ante” criterion helps us to sort through welfare incidences. The importance of labor supply responses at the extensive margin makes the EITC better for redistribution than the NIT.

Suggested Citation

  • Holter, Hans A. & Ljungqvist, Lars & Sargent, Thomas J. & Stepanchuk, Serhiy, 2025. "Singles, couples, time-averaging, and taxation," Journal of Monetary Economics, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:moneco:v:150:y:2025:i:c:s0304393224001557
    DOI: 10.1016/j.jmoneco.2024.103702
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    More about this item

    Keywords

    Heterogeneous households; Precautionary saving; Labor supply; Time-averaging; Social security; Flat-rate tax; Negative income tax; EITC;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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