Abstract
The life-cycle general equilibrium simulation model in the previous chapter incorporated a single representative household. Therefore, Chap. 2 fails to take account of one important aspect, namely, intragenerational redistribution. In this chapter we incorporate three representative households with unequal incomes into the simulation model. This enables us to address the problem of within-cohort inequality. Progressive labor income taxation and progressive consumption (or expenditure) taxation are discussed in this chapter, and the method of modeling progressive taxation is explained. This chapter also demonstrates how progressive taxes affect capital formation and intragenerational redistribution. Thus, it compares these two tax regimes in terms of efficiency and equity.
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