| Data: |
2017 |
| Resum: |
I quantify the welfare gains from introducing history dependent income tax in an incomplete markets overlapping generations framework where individuals face uninsurable idiosyncratic shocks. I assume that the income tax paid is a function of a geometrical weighted average of past incomes, and solve for the optimal weights. I find that the two main factors that determine the nature of history dependence are the degree to which the government discounts future generations and the degree of mean reversion in the productivity process. The welfare gains from history dependence are large, about 1. 76 percent of consumption. I decompose the total effect into an efficiency effect that increases labour supply, and an insurance effect that reduces volatility of consumption and find that, quantitatively, the insurance effect dominates the efficiency effect. The optimal tax increases consumption insurance by trading higher tax progressivity with respect to past incomes for a reduced tax progressivity with respect to the current income. |
| Resum: |
The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396. |
| Ajuts: |
European Commission 649396
|
| Drets: |
Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original.  |
| Llengua: |
Anglès |
| Col·lecció: |
Barcelona Graduate School of Economics. ADEMU working paper series |
| Col·lecció: |
ADEMU Working Paper Series ; 71 |
| Document: |
Working paper |
| Matèria: |
Risk sharing ;
Income taxation ;
Incomplete markets |
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