IDEAS home Printed from https://ideas.repec.org/a/spr/jecrev/v73y2022i4d10.1007_s42973-020-00071-7.html
   My bibliography  Save this article

Taxation and human capital accumulation with endogenous mortality

Author

Listed:
  • Debajyoti Chakrabarty

    (Charles Darwin University)

Abstract

We study the impact of taxation on human capital when the mortality of household agents is endogenously determined based on their past levels of consumption. We characterize and solve the dynamic optimization problem facing household agents in the economy. Even though all households in our economy have identical preferences and have access to the same human capital accumulation technology, with endogenous mortality, there is a possibility of multiple equilibria. Households with an initial endowment of human capital above a threshold choose to accumulate human capital, while those below the threshold end up with very low levels of human capital. We use empirical estimates of the income–mortality relationship in Canada, France, and the US to simulate our model. When income has a strong protective effect against mortality, we find that multiple equilibria are empirically plausible. Our simulations suggest that changes in proportional tax rates have more than twice the impact on aggregate human capital in the endogenous mortality model compared to the infinite horizon model.

Suggested Citation

  • Debajyoti Chakrabarty, 2022. "Taxation and human capital accumulation with endogenous mortality," The Japanese Economic Review, Springer, vol. 73(4), pages 555-596, October.
    • Handle: RePEc:spr:jecrev:v:73:y:2022:i:4:d:10.1007_s42973-020-00071-7
    DOI: 10.1007/s42973-020-00071-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s42973-020-00071-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s42973-020-00071-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Debajyoti Chakrabarty & Hajime Katayama & Hanna Maslen, 2008. "Why Do the Rich Save More? A Theory and Australian Evidence," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages 32-44, September.
    2. Erosa, Andres & Koreshkova, Tatyana, 2007. "Progressive taxation in a dynastic model of human capital," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 667-685, April.
    3. Angus Deaton, 2003. "Health, Inequality, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 113-158, March.
    4. Angus S. Deaton & Christina Paxson, 2001. "Mortality, Education, Income, and Inequality among American Cohorts," NBER Chapters, in: Themes in the Economics of Aging, pages 129-170, National Bureau of Economic Research, Inc.
    5. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 323-350, National Bureau of Economic Research, Inc.
    6. Chakrabarty Debajyoti, 2012. "Poverty Traps and Growth in a Model of Endogenous Time Preference," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-35, July.
    7. Iwai, Katsuhito, 1972. "Optimal economic growth and stationary ordinal utility --A fisherian approach," Journal of Economic Theory, Elsevier, vol. 5(1), pages 121-151, August.
    8. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    9. Kalemli-Ozcan, Sebnem, 2002. "Does the Mortality Decline Promote Economic Growth?," Journal of Economic Growth, Springer, vol. 7(4), pages 411-439, December.
    10. Christian Kleiber, 2008. "A Guide to the Dagum Distributions," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Duangkamon Chotikapanich (ed.), Modeling Income Distributions and Lorenz Curves, chapter 6, pages 97-117, Springer.
    11. Shankha Chakraborty & Mausumi Das, 2005. "Mortality, Human Capital and Persistent Inequality," Journal of Economic Growth, Springer, vol. 10(2), pages 159-192, June.
    12. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 1-41.
    13. Ben J. Heijdra & Ward E. Romp, 2008. "A life-cycle overlapping-generations model of the small open economy," Oxford Economic Papers, Oxford University Press, vol. 60(1), pages 88-121, January.
    14. Ken‐Ichi Hirose & Shinsuke Ikeda, 2008. "On Decreasing Marginal Impatience," The Japanese Economic Review, Japanese Economic Association, vol. 59(3), pages 259-274, September.
    15. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 659-684.
    16. James Davies & John Whalley, 1991. "Taxes and Capital Formation: How Important is Human Capital?," NBER Chapters, in: National Saving and Economic Performance, pages 163-200, National Bureau of Economic Research, Inc.
    17. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    18. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    19. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
    20. Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February.
    21. repec:dau:papers:123456789/425 is not listed on IDEAS
    22. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-350, April.
    23. Hendricks, Lutz, 2004. "Taxation And Human Capital Accumulation," Macroeconomic Dynamics, Cambridge University Press, vol. 8(3), pages 310-334, June.
    24. Florence Jusot, 2006. "The shape of the relationship between mortality and income in France," Annals of Economics and Statistics, GENES, issue 83-84, pages 89-122.
    25. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    26. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    27. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 126-150, October.
    28. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
    29. Edward N. Wolff, 1998. "Recent Trends in the Size Distribution of Household Wealth," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 131-150, Summer.
    30. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    31. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
    32. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
    33. John W. Kendrick, 1976. "The Formation and Stocks of Total Capital," NBER Books, National Bureau of Economic Research, Inc, number kend76-1.
    34. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
    35. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    36. Luigi Ventura, 2003. "Direct Measures of Time Preference," The Economic and Social Review, Economic and Social Studies, vol. 34(3), pages 293-310.
    37. Das, Mausumi, 2003. "Optimal growth with decreasing marginal impatience," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1881-1898, August.
    38. Harriet Orcutt Duleep, 1986. "Measuring the Effect of Income on Adult Mortality Using Longitudinal Administrative Record Data," Journal of Human Resources, University of Wisconsin Press, vol. 21(2), pages 238-251.
    39. Barbara Boyle Torrey & Carl Haub, 2004. "A Comparison of US and Canadian Mortality in 1998," Population and Development Review, The Population Council, Inc., vol. 30(3), pages 519-530, September.
    40. repec:adr:anecst:y:2006:i:83-84:p:04 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Strulik, Holger, 2012. "Patience and prosperity," Journal of Economic Theory, Elsevier, vol. 147(1), pages 336-352.
    2. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Debajyoti Chakrabarty & Hajime Katayama & Hanna Maslen, 2008. "Why Do the Rich Save More? A Theory and Australian Evidence," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages 32-44, September.
    4. Amparo Castelló‐Climent & Rafael Doménech, 2008. "Human Capital Inequality, Life Expectancy And Economic Growth," Economic Journal, Royal Economic Society, vol. 118(528), pages 653-677, April.
    5. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    6. Philip Trostel & Ian Walker, 2006. "Education and Work," Education Economics, Taylor & Francis Journals, vol. 14(4), pages 377-399.
    7. Chaitali Sinha, 2014. "Human Capital and Public Policy," South Asian Journal of Macroeconomics and Public Finance, , vol. 3(1), pages 79-125, June.
    8. Raphaele Chappe & Willi Semmler, 2019. "Financial Market as Driver for Disparity in Wealth Accumulation—A Receding Horizon Approach," Computational Economics, Springer;Society for Computational Economics, vol. 54(3), pages 1231-1261, October.
    9. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.
    10. Erosa, Andres & Koreshkova, Tatyana, 2007. "Progressive taxation in a dynastic model of human capital," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 667-685, April.
    11. Richard M. H. Suen, 2014. "Time Preference And The Distributions Of Wealth And Income," Economic Inquiry, Western Economic Association International, vol. 52(1), pages 364-381, January.
    12. Roland Benabou, 2002. "Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?," Econometrica, Econometric Society, vol. 70(2), pages 481-517, March.
    13. Marco Cozzi, 2012. "Risk Aversion Heterogeneity, Risky Jobs And Wealth Inequality," Working Paper 1286, Economics Department, Queen's University.
    14. Andrés Erosa & Tatyana Koreshkova & Diego Restuccia, 2010. "How Important Is Human Capital? A Quantitative Theory Assessment of World Income Inequality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1421-1449.
    15. Bovenberg, A. Lans & van Ewijk, Casper, 1997. "Progressive taxes, equity, and human capital accumulation in an endogenous growth model with overlapping generations," Journal of Public Economics, Elsevier, vol. 64(2), pages 153-179, May.
    16. Kazumichi Iwasa & Laixun Zhao, 2013. "Inequalities and Patience for Tomorrow," KIER Working Papers 847, Kyoto University, Institute of Economic Research.
    17. Piketty, Thomas, 2000. "Theories of persistent inequality and intergenerational mobility," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 8, pages 429-476, Elsevier.
    18. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    19. Hendricks, Lutz, 1999. "Taxation and long-run growth1," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 411-434, April.

    More about this item

    Keywords

    Endogenous mortality; Inter-temporal choice; Human capital; Taxation;
    All these keywords.

    JEL classification:

    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecrev:v:73:y:2022:i:4:d:10.1007_s42973-020-00071-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.