Optimal Dynamic Taxes

Mikhail Golosov · Maxim Troshkin · Aleh Tsyvinski

62 citations0/0 files storedNational Bureau of Economic Research

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Abstract

We study optimal labor and savings distortions in a lifecycle model with idiosyncratic shocks.We show a tight connection between its recursive formulation and a static Mirrlees model with two goods, which allows us to derive elasticity-based expressions for the dynamic optimal distortions.We derive a generalization of a savings distortion for non-separable preferences and show that, under certain conditions, the labor wedge tends to zero for sufficiently high skills.We estimate skill distributions using individual data on the U.S. taxes and labor incomes.Computed optimal distortions decrease for sufficiently high incomes and increase with age.

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References

1971An Exploration in the Theory of Optimum Income Taxation 1998Numerical Methods in Economics 2011Top Incomes in the Long Run of History 1976The design of tax structure: Direct versus indirect taxation 1985Redistributive taxation in a simple perfect foresight model 2001Using Elasticities to Derive Optimal Income Tax Rates 2009Unequal we stand: An empirical analysis of economic inequality in the United States, 1967–2006 2007Taxing Capital? Not a Bad Idea After All!

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