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childbearing, idiosyncratic, overlaping generations models, uncertainty
childbearing, overlapping generations, idiosyncratic uncertainty
Progressive Taxation, Optimal Taxation, Social Insurance, Transition
We argue that a privatization of the social security system, going from a Pay-As-You- Go to a Fully Funded system, can be interpreted as the explicit recognition of an implicit debt and there is no efficiency gain in doing so. As a consequence, potential efficiency gains upon reforming the system come from the elimination of distortions and the optimal management of that implicit debt. Based on that argument, this paper studies the optimal design of a social security privatization in a Pareto improving way. The government decides endogenously how to finance the transition and the welfare of the initial generations alive becomes policy constraint. We find that the government can design a Pareto improving reform that exhibits sizeable welfare gains, arising because of a reduction in labor supply distortions. In contrast, the welfare gain...
This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor productivity risk gives rise to a nontrivial income and wealth distribution. A progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare. These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labor supply and capital accumulation decisions. Using a utilitarian steady state social welfare criterion we find that the optimal US income tax is well approximated by a flat tax rate of 17.2% and a fixed deduction of about $9,400. The steady state welfare gains from a fundamental tax reform towards this tax system are equ...
dynamic general equilibrium, heterogeneous agents, social security reform
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