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Quantifying the Welfare Gains from Flexible Dynamic Income Tax Systems

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  • Kenichi Fukushima

Abstract

This paper sets up an overlapping generations general equilibrium model with incomplete markets similar to Conesa, Kitao, and Krueger's (2009) and uses it to simulate a policy reform which replaces an optimal at tax with an optimal non-linear tax that is allowed to be arbitrarily age and history dependent. The reform shifts labor supply toward productive households and thereby increases aggregate productivity. This leads to a large increase in per capita consumption and a moderate increase in per capita hours. Under a utilitarian social welfare function that places equal weight on all current and future cohorts, the implied welfare gain amounts to more than 10% in lifetime consumption equivalents.

Suggested Citation

  • Kenichi Fukushima, 2011. "Quantifying the Welfare Gains from Flexible Dynamic Income Tax Systems," Global COE Hi-Stat Discussion Paper Series gd10-176, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd10-176
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-176.pdf
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    Cited by:

    1. Roozbeh Hosseini & Ali Shourideh, 2019. "Retirement Financing: An Optimal Reform Approach," Econometrica, Econometric Society, vol. 87(4), pages 1205-1265, July.
    2. Fehr, Hans & Kindermann, Fabian, 2015. "Taxing capital along the transition—Not a bad idea after all?," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 64-77.

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