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Optimal redistribution: A life-cycle perspective

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  • Michau, Jean-Baptiste

Abstract

In this paper, I characterize the optimal redistribution policy in a simple life-cycle framework with both an intensive and an extensive margin of labor supply. The extensive margin corresponds to the choice of a retirement age. The optimal allocation cannot be implemented in a decentralized economy by a standard non-linear income tax alone. It can however be implemented by a history-dependent social security system which redistributes resources across agents. A calibration of the model to the U.S. economy reveals that the retirement age should optimally be sharply increasing in productivity and that implementing the optimal life-cycle redistribution policy can generate large social welfare gains.

Suggested Citation

  • Michau, Jean-Baptiste, 2014. "Optimal redistribution: A life-cycle perspective," Journal of Public Economics, Elsevier, vol. 111(C), pages 1-16.
    • Handle: RePEc:eee:pubeco:v:111:y:2014:i:c:p:1-16
    DOI: 10.1016/j.jpubeco.2013.12.010
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    3. repec:spo:wpecon:info:hdl:2441/45smbs6p8180bqfu6epmve62q2 is not listed on IDEAS
    4. Bielecki, Marcin & Goraus, Karolina & Hagemejer, Jan & Makarski, Krzysztof & Tyrowicz, Joanna, 2015. "Small assumptions (can) have a large bearing: evaluating pension system reforms with OLG models," Economic Modelling, Elsevier, vol. 48(C), pages 210-221.
    5. Philippe Choné & Guy Laroque, 2014. "Income tax and retirement schemes," Working Papers hal-01070554, HAL.
    6. Philippe Choné & Guy Laroque, 2018. "On the redistributive power of pensions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(3), pages 519-546, March.
    7. Philippe Choné & Guy Laroque, 2014. "Income tax and retirement schemes," SciencePo Working papers Main hal-01070554, HAL.
    8. Takao Kataoka & Yoshihiro Takamatsu, 2024. "Optimal labor income taxation and asset distribution in an economy with no insurance market and extensive labor supply responses," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(6), pages 1611-1639, December.
    9. Abdoulaye Ndiaye, 2017. "Flexible Retirement and Optimal Taxation," Working Paper Series WP-2018-18, Federal Reserve Bank of Chicago.
    10. repec:spo:wpmain:info:hdl:2441/45smbs6p8180bqfu6epmve62q2 is not listed on IDEAS
    11. Bagchi, Shantanu, 2019. "Differential mortality and the progressivity of social security," Journal of Public Economics, Elsevier, vol. 177(C), pages 1-1.
    12. Takao Kataoka & Yoshihiro Takamatsu, 2020. "Optimal age‐dependent income taxation in a dynamic extensive model: The case for negative participation tax on young people," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1338-1367, September.
    13. Louis Kaplow, 2022. "Optimal Income Taxation," NBER Working Papers 30199, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Extensive margin; Optimal redistribution; Retirement age; Social security;
    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
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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