TY - JOUR
T1 - Optimal age-dependent income taxation in a dynamic extensive model
T2 - The case for negative participation tax on young people
AU - Kataoka, Takao
AU - Takamatsu, Yoshihiro
N1 - Funding Information:
We are especially grateful to the editors, an associate editor, and a referee of the journal, Emanuel Hansen, Andreas Haufler, Tomohiro Inoue, Takashi Kuribayashi, Etienne Lehmann, Shigeo Morita, Masamitsu Mochizuki, Yukihiro Nishimura, Hiroyasu Nomura, Tim Obermeier, Shuichi Tsugawa, Tadao Yamada, John Douglas Wilson, and the participants at the International Symposium of Urban Economics and Public Economics in Osaka and Japanese Economic Association 2018 Spring meeting, the 74th Annual Congress of the International Institute of Public Finance for their insightful comments and suggestions. This study was supported by JSPS KAKENHI (grant numbers 15K17073 and 19K01717).
Publisher Copyright:
© 2019 Wiley Periodicals, Inc.
PY - 2020/9/1
Y1 - 2020/9/1
N2 - We consider optimal age-dependent income taxation in a dynamic model where the labor-leisure choice is the extensive margin, each household faces idiosyncratic shocks to labor productivity and a pecuniary cost to work, and there is no insurance market against the shocks. We show that the well-known property of the optimal participation tax rate in the static model continues to hold in our dynamic economy, that is, the participation tax rates for some income groups with low consumption are likely negative. In dynamic models, the optimal participation tax rate depends on age and on labor income. Our numerical simulations suggest that a negative participation tax should be restricted to young households.
AB - We consider optimal age-dependent income taxation in a dynamic model where the labor-leisure choice is the extensive margin, each household faces idiosyncratic shocks to labor productivity and a pecuniary cost to work, and there is no insurance market against the shocks. We show that the well-known property of the optimal participation tax rate in the static model continues to hold in our dynamic economy, that is, the participation tax rates for some income groups with low consumption are likely negative. In dynamic models, the optimal participation tax rate depends on age and on labor income. Our numerical simulations suggest that a negative participation tax should be restricted to young households.
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U2 - 10.1111/jpet.12421
DO - 10.1111/jpet.12421
M3 - Article
AN - SCOPUS:85077380432
VL - 22
SP - 1338
EP - 1367
JO - Journal of Public Economic Theory
JF - Journal of Public Economic Theory
SN - 1467-9779
IS - 5
ER -