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Quantifying the Welfare Gains From Flexible Dynamic Income Tax Systems

Author

Listed:
  • Kenichi Fukushima

    (University of Minnesota and FRB Minneapolis)

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 flat 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 higher per capita consumption and shorter per capita hours. Under a utilitarian social welfare function that places equal weight on all current and future cohorts, the implied welfare gain is worth more than 10% in lifetime consumption equivalents.

Suggested Citation

  • Kenichi Fukushima, 2010. "Quantifying the Welfare Gains From Flexible Dynamic Income Tax Systems," 2010 Meeting Papers 410, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:410
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    Cited by:

    1. Del Negro, Marco & Perri, Fabrizio & Schivardi, Fabiano, 2010. "Tax buyouts," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 576-595, July.
      • Marco Del Negro & Fabrizio Perri & Fabiano Schivardi, 2010. "Tax Buyouts," EIEF Working Papers Series 1007, Einaudi Institute for Economics and Finance (EIEF), revised Mar 2010.
      • Marco Del Negro & Fabrizio Perri & Fabiano Schivardi, 2010. "Tax buyouts," Staff Report 441, Federal Reserve Bank of Minneapolis.
      • Marco Del Negro & Fabrizio Perri & Fabiano Schivardi, 2010. "Tax buyouts," NBER Working Papers 15847, National Bureau of Economic Research, Inc.
      • Marco Del Negro & Fabrizio Perri & Fabiano Schivardi, 2010. "Tax buyouts," Staff Reports 467, Federal Reserve Bank of New York.
    2. Slavík, Ctirad & Yazici, Hakki, 2014. "Machines, buildings, and optimal dynamic taxes," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 47-61.
    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. Piero Gottardi & Atsushi Kajii & Tomoyuki Nakajima, 2010. "Optimal taxation and constrained inefficiency in an infinite-horizon economy with incomplete markets," KIER Working Papers 745, Kyoto University, Institute of Economic Research.
    5. Ales, Laurence & Maziero, Pricila, 2016. "Non-exclusive dynamic contracts, competition, and the limits of insurance," Journal of Economic Theory, Elsevier, vol. 166(C), pages 362-395.
    6. Maxim Troshkin & Aleh Tsyvinski & Mikhail Golosov, 2010. "Optimal Dynamic Taxes," 2010 Meeting Papers 320, Society for Economic Dynamics.
    7. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2013. "The Welfare Gains Of Age‐Related Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1219-1249, November.
    8. Kitao, Sagiri, 2010. "Labor-dependent capital income taxation," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 959-974, November.
    9. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2013. "The Welfare Gains Of Age‐Related Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(4), pages 1219-1249, November.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. Mikhail Golosov & Maxim Troshkin & Aleh Tsyvinski, 2016. "Redistribution and Social Insurance," American Economic Review, American Economic Association, vol. 106(2), pages 359-386, February.

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