nep-pub New Economics Papers
on Public Finance
Issue of 2012‒05‒22
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. An extensive look at taxes: how does endogenous retirement affect optimal taxation? By William B. Peterman
  2. Optimal Redistributive Taxation with both Labor Supply and Labor Demand Responses By Bruno Jacquet; Etienne Lehmann; Bruno Van der Linden
  3. Redistributive Politics and Government Debt in a Borrowing-constrained Economy By Ryo Arawatari; Tetsuo Ono
  4. Fiscal policy in Chile: Hindering sustainable development by favoring myopic growth By Ramón E. López; Eugenio Figueroa

  1. By: William B. Peterman
    Abstract: This paper considers the impact on optimal tax policy of including endogenously determined retirement in a life cycle model. Allowing individuals to determine when they retire causes the optimal tax on capital to increase by 75% because of two implicit changes in the aggregate labor supply elasticity. First, including endogenous retirement causes an increase in the overall aggregate labor supply elasticity since agents can change their labor supply on both the intensive and extensive margins. In response, the government limits the distortions from the tax policy by lowering the tax on labor and increases the tax on capital. Second, given that the choice to retire is more relevant for older individuals, endogenous retirement disproportionately increases older agent's elasticity compared to younger individuals. Ideally, the government would decrease the relative labor income tax on individuals when they are older and supply labor more elastically. However, in the absence of age-dependent taxes, the government mimics such a tax policy by further increasing the tax on capital. I find that the welfare lost from not accounting for endogenous retirement when solving for the optimal tax policy is equivalent to approximately one percent of lifetime consumption.
    Date: 2012
  2. By: Bruno Jacquet; Etienne Lehmann (CREST); Bruno Van der Linden
    Keywords: Optimal taxation, Labor market frictions, Unemployment
    JEL: D82 H21 J64
    Date: 2011–05
  3. By: Ryo Arawatari (Graduate School of Economics, Nagoya University); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: We develop a two-period, three-class of income model where low-income agents are borrowing constrained because of capital market imperfections, and where redistributive expenditure is financed by tax and government debt. When the degree of capital market imperfection is high, there is an ends-against-the-middle equilibrium where the constrained low-income and the unconstrained high-income agents favor low levels of government debt and redistributive expenditure; these agents form a coalition against the middle. In this equilibrium, the levels of government debt and expenditure might be below the efficient levels, and the spread of income distribution results in a lower debt-to-GDP ratio.
    Keywords: Government debt; Borrowing constraints; Voting; Structure-induced equilibrium; Income inequality.
    JEL: D72 H52 H60
    Date: 2011–01
  4. By: Ramón E. López; Eugenio Figueroa
    Abstract: We show that the tax system in Chile is insufficient, inefficient and inequitable. Insufficient because it does not yield enough revenues for the state to promote human capital development and to face poverty in a more comprehensive way; inefficient because it is highly unbalanced causing most of the tax burden to be concentrated in very few taxes while neglecting the use of the least distortion-prone tax mechanisms available; inequitable because it forces the middle and low income groups to shoulder most of the tax burden while allowing the super rich to get away paying one of the lowest tax rates among middle income and advanced countries. The consequence of the combined effect of the two sides of this fiscal policy - taxation and public expenditures - is to artificially increase the capital intensity of the economy, to deepen its dependency on natural resource based and environmentally dirty industries, to handicap the creation of human capital and to delay the evolution towards a knowledge-based economy. Fiscal policy has thus negatively affected the long run growth potential of the economy and has contributed to perpetuate a highly unequal distribution of wealth and to exacerbate environmental and natural resource degradation.
    Date: 2011–11

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