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  3. American Economic Journal: Macroeconomics
  4. April 2016
  5. A Road Map for Efficiently Taxing Heterogeneous Agents

A Road Map for Efficiently Taxing Heterogeneous Agents

  • Marios Karabarbounis
American Economic Journal: Macroeconomics
vol. 8, no. 2, April 2016
(pp. 182-214)
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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)

Citation

Karabarbounis, Marios. 2016. "A Road Map for Efficiently Taxing Heterogeneous Agents." American Economic Journal: Macroeconomics, 8 (2): 182-214. DOI: 10.1257/mac.20140274

Additional Materials

JEL Classification

  • D14 Household Saving; Personal Finance
  • D15 Intertemporal Household Choice; Life Cycle Models and Saving
  • H21 Taxation and Subsidies: Efficiency; Optimal Taxation
  • H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
  • J22 Time Allocation and Labor Supply
  • J31 Wage Level and Structure; Wage Differentials
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