scholarly journals A Road Map for Efficiently Taxing Heterogeneous Agents

2016 ◽  
Vol 8 (2) ◽  
pp. 182-214 ◽  
Author(s):  
Marios Karabarbounis
Keyword(s):  
Income Taxes ◽  
Labor Income ◽  
Cycle Model ◽  
Tax System ◽  
Road Map ◽  
Optimal Tax ◽  
Key Innovation ◽  
Labor Supply Elasticity ◽  
Household Assets ◽  
Tax Distortions

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)

scholarly journals Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium

Econometrica ◽  
2020 ◽  
Vol 88 (2) ◽  
pp. 469-493 ◽  
Author(s):  
Dominik Sachs ◽  
Aleh Tsyvinski ◽  
Nicolas Werquin
Keyword(s):  
General Equilibrium ◽  
Optimal Taxation ◽  
Income Taxes ◽  
Tax Incidence ◽  
Labor Income ◽  
Tax Rates ◽  
Tax System ◽  
Marginal Tax Rates ◽  
Optimal Taxes

We study the incidence of nonlinear labor income taxes in an economy with a continuum of endogenous wages. We derive in closed form the effects of reforming nonlinearly an arbitrary tax system, by showing that this problem can be formalized as an integral equation. Our tax incidence formulas are valid both when the underlying assignment of skills to tasks is fixed or endogenous. We show qualitatively and quantitatively that contrary to conventional wisdom, if the tax system is initially suboptimal and progressive, the general‐equilibrium “trickle‐down” forces may raise the benefits of increasing the marginal tax rates on high incomes. We finally derive a parsimonious characterization of optimal taxes.

ENTREPRENEURIAL LABOR AND CAPITAL TAXATION

2010 ◽  
Vol 15 (3) ◽  
pp. 326-335 ◽  
Author(s):  
Catarina Reis
Keyword(s):  
Income Taxes ◽  
Income Taxation ◽  
Labor Income ◽  
Capital Taxation ◽  
Capital Income ◽  
Capital Income Taxation ◽  
Optimal Tax ◽  
Long Run ◽  
Capital Tax ◽  
The Government

This paper considers a Ramsey model of linear taxation for an economy with capital and two kinds of labor. If the government cannot distinguish between the return from capital and the return from entrepreneurial labor, then there will be positive capital income taxation, even in the long run. This happens because the only way to tax entrepreneurial labor is by also taxing capital. Furthermore, under fairly general conditions, the optimal tax on observable labor income is higher than the capital tax, although both are strictly positive. Thus, even though both income taxes are positive, imposing uniform income taxation would lead to additional distortions in the economy.

scholarly journals Swedish Taxation in a 150-year Perspective

2014 ◽  
Vol 2014 (2) ◽  
pp. 10-42 ◽  
Author(s):  
Mikael Stenkula
Keyword(s):  
Real Estate ◽  
Income Taxes ◽  
Labor Income ◽  
Capital Income ◽  
Tax System ◽  
Payroll Taxes ◽  
The Public ◽  
Key Aspects ◽  
Consumption Taxes ◽  
Over Time

Abstract This paper examines the development of taxation in Sweden from 1862 to 2010. The examination includes six key aspects of the Swedish tax system, namely the taxation of labor income, capital income, wealth, inheritances and gifts, consumption and real estate. The importance of these taxes varied greatly over time and Sweden increasingly relied on broad-based taxes (such as income taxes and general consumption taxes) and taxes that were less visible to the public (such as payroll taxes and social security contributions). The tax-to-GDP ratio was initially low and relatively stable, but from the 1930s, the ratio increased sharply for nearly 50 years. Towards the end of the period, the tax-to-GDP ratio declined significantly.

WHAT IS AN "OPTIMAL" TAX SYSTEM?

1996 ◽  
Vol 49 (1) ◽  
pp. 117-133 ◽  
Author(s):  
JAMES ALM
Keyword(s):  
Tax System ◽  
Optimal Tax

Optimal Mirrleesean Taxation in a Ben-Porath Economy

2015 ◽  
Vol 7 (2) ◽  
pp. 219-248 ◽  
Author(s):  
Marek Kapička
Keyword(s):  
Human Capital ◽  
Life Cycle ◽  
Income Taxes ◽  
Optimal Tax ◽  
Cycle Economy ◽  
The Us ◽  
Optimal Taxes

I characterize optimal taxes in a life-cycle economy where ability and human capital are unobservable. I show that unobservable human capital effectively makes preferences over labor nonseparable across age. I generalize the static optimal tax formulas to account for such nonseparabilities and show how they depend both on own-Frisch labor elasticities and cross-Frisch labor elasticities. I calibrate the economy to US data. I find that the optimal marginal income taxes decrease with age, in contrast to both the US tax code and to a model with observable human capital. I demonstrate that the behavior of cross-Frisch elasticities is essential in explaining the decline. (JEL D91, H21, H24, J24)

Business Income Taxes

2020 ◽  
Author(s):  
Leonard E. Burman ◽  
Joel Slemrod
Keyword(s):  
Income Tax ◽  
Income Taxes ◽  
Labor Income ◽  
Business Income

How do we tax corporations’ income? In principle, under an income tax all income is subject to taxation. Moreover, no kinds of income are subject to exceptionally high tax and no kinds are subject to exceptionally low tax. This principle applies to labor income, the...

scholarly journals Optimal loss-carry-forward taxation for Lévy risk processes stopped at general draw-down time

2019 ◽  
Vol 51 (03) ◽  
pp. 865-897 ◽  
Author(s):  
Wenyuan Wang ◽  
Zhimin Zhang
Keyword(s):  
Objective Function ◽  
Insurance Company ◽  
Tax System ◽  
Ruin Time ◽  
Return Function ◽  
Numerical Examples ◽  
Optimal Tax ◽  
Spectrally Negative Lévy Process ◽  
Tax Payments ◽  
Risk Processes

AbstractMotivated by Avram, Vu and Zhou (2017), Kyprianou and Zhou (2009), Li, Vu and Zhou (2017), Wang and Hu (2012), and Wang and Zhou (2018), we consider in this paper the problem of maximizing the expected accumulated discounted tax payments of an insurance company, whose reserve process (before taxes are deducted) evolves as a spectrally negative Lévy process with the usual exclusion of negative subordinator or deterministic drift. Tax payments are collected according to the very general loss-carry-forward tax system introduced in Kyprianou and Zhou (2009). To achieve a balance between taxation optimization and solvency, we consider an interesting modified objective function by considering the expected accumulated discounted tax payments of the company until the general draw-down time, instead of until the classical ruin time. The optimal tax return function and the optimal tax strategy are derived, and some numerical examples are also provided.

scholarly journals Population Aging and Potential Growth in Asia

2016 ◽  
Vol 33 (2) ◽  
pp. 56-73 ◽  
Author(s):  
Keisuke Otsu ◽  
Katsuyuki Shibayama
Keyword(s):  
Economic Growth ◽  
Productivity Growth ◽  
Population Aging ◽  
Output Growth ◽  
Income Taxes ◽  
Labor Income ◽  
Labor Participation ◽  
Potential Growth ◽  
Asian Economies

We study the effects of projected population aging on potential growth in Asian economies over the period 2015–2050. We find that an increase in the share of the population over 64 years of age will significantly lower output growth through decreased labor participation. Population aging can also reduce economic growth through increased labor income taxes and dampened productivity growth.

scholarly journals Reforming the individual income tax in Spain

SERIEs ◽  
2020 ◽  
Vol 11 (4) ◽  
pp. 369-406 ◽  
Author(s):  
Nezih Guner ◽  
Javier López-Segovia ◽  
Roberto Ramos
Keyword(s):  
Labor Supply ◽  
Income Taxes ◽  
Tax Revenue ◽  
Labor Income ◽  
Marginal Tax Rate ◽  
Tax Rate ◽  
Percentage Points ◽  
The Mean ◽  
The Government ◽  
The Individual

AbstractCan the Spanish government generate more tax revenue by making personal income taxes more progressive? To answer this question, we build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. Our answer is yes, but not much. A reform that increases labor income taxes for individuals who earn more than the mean labor income and reduces taxes for those who earn less than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an effective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The increase in revenue from labor income taxes is only 0.82%, while the total tax revenue declines by 1.55%. The higher progressivity is associated with lower aggregate labor supply and capital. As a result, the government collects higher taxes from a smaller economy. The total tax revenue is higher if marginal taxes are raised only for the top earners. The increase, however, must be substantial and cover a large segment of top earners. The rise in tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than €41,699) raises total tax revenue by 2.81%.

scholarly journals Learning Your Earning: Are Labor Income Shocks Really Very Persistent?

2007 ◽  
Vol 97 (3) ◽  
pp. 687-712 ◽  
Author(s):  
Fatih Guvenen
Keyword(s):  
Life Cycle ◽  
Current Literature ◽  
Previous Literature ◽  
Labor Income ◽  
Income Shocks ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Consumption Data ◽  
Hip Process

The current literature offers two views on the nature of the labor income process. According to the first view, individuals are subject to very persistent income shocks while facing similar life-cycle income profiles (the RIP process, Thomas MaCurdy 1982). According to the alternative, individuals are subject to shocks with modest persistence while facing individual-specific profiles (the HIP process, Lee A. Lillard and Yoram A. Weiss 1979). In this paper we study the restrictions imposed by these two processes on consumption data—in the context of a life-cycle model—to distinguish between the two views. We find that the life-cycle model with a HIP process, which has not been studied in the previous literature, is consistent with several features of consumption data, whereas the model with a RIP process is consistent with some, but not with others. We conclude that the HIP model could be a credible contender to—and along some dimensions, a more coherent alternative than—the RIP model. (JEL D83, D91, E21, J31)

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