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Generational Bias and Tax Policy

Author

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  • Alan Krause

Abstract

We examine the nonlinear taxation of labour income and savings when the government places more weight on the welfare of the elderly than of young people. Our analysis is motivated by the observation that the elderly are more likely to vote. Compared to optimal taxation under a utilitarian social welfare function, we show that savings are subsidised, and young low-skill workers face a higher marginal labour tax rate. We also show that the lifetime utility of low-skill individuals is reduced, and that of high-skill individuals is increased, relative to optimal taxation under utilitarianism. An extension of the model to include generation-specific public spending is also considered.

Suggested Citation

  • Alan Krause, 2019. "Generational Bias and Tax Policy," Discussion Papers 19/02, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:19/02
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    Cited by:

    1. Chen, Yunmin & Guo, Jang-Ting & Krause, Alan, 2020. "The credibility of commitment and optimal nonlinear savings taxation," Journal of Macroeconomics, Elsevier, vol. 65(C).

    More about this item

    Keywords

    generational policy; nonlinear taxation.;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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