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A Road Map for Efficiently Taxing Heterogeneous Agents †

A Road Map for Efficiently Taxing Heterogeneous Agents † Abstract This paper characterizes optimal labor income taxes that depend on age, household assets, and filing status (one or two earners) within a life-cycle model with heterogeneous, two-member households. The key innovation is a labor supply elasticity that varies endogenously among households. I find that tax distortions should be hump shaped in age, decrease in household assets, and be lower for joint relative to single filers. Age and assets act as complements within the optimal tax policy. Overall, a tax system using all three tags can increase consumption up to 6.4 percent and welfare up to 1.5 percent. (JEL D14, D91, H21, H24, J22, J31 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

A Road Map for Efficiently Taxing Heterogeneous Agents †

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Publisher
American Economic Association
Copyright
Copyright © 2016 by the American Economic Association
Subject
Articles
ISSN
1945-7715
eISSN
1945-7715
DOI
10.1257/mac.20140274
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper characterizes optimal labor income taxes that depend on age, household assets, and filing status (one or two earners) within a life-cycle model with heterogeneous, two-member households. The key innovation is a labor supply elasticity that varies endogenously among households. I find that tax distortions should be hump shaped in age, decrease in household assets, and be lower for joint relative to single filers. Age and assets act as complements within the optimal tax policy. Overall, a tax system using all three tags can increase consumption up to 6.4 percent and welfare up to 1.5 percent. (JEL D14, D91, H21, H24, J22, J31 )

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Apr 1, 2016

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