Abstract
This article considers a stationary economy populated with overlapping generations that reproduce identically in continuous time. Each dynasty has a productivity and an opportunity cost of going to work that vary with age. Labor supply is extensive. At each date, the typical agent can either work full time or not work at all. The decision to work is based on a comparison between after tax income and the privately known opportunity cost of work. We assume that the utilitarian government, which aims at redistributing lifetime utility across dynasties, has a single policy instrument, a stationary income tax schedule function of current income. The article develops a method to study the government problem. This technique is applied to derive the properties of the optimal income tax schedule in a number of examples.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.