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AGE‐DEPENDENT TAXES WITH ENDOGENOUS HUMAN CAPITAL FORMATION
Author(s) -
da Costa Carlos E.,
Santos Marcelo R.
Publication year - 2018
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12288
Subject(s) - economics , overlapping generations model , welfare , complementarity (molecular biology) , human capital , general equilibrium theory , labour economics , monetary economics , capital income , profit (economics) , microeconomics , international taxation , market economy , tax reform , biology , genetics
We assess the gains attained by the introduction of age‐dependent labor income taxes in an overlapping generations economy where individuals live a meaningful life cycle and endogenously accumulate human capital. The model is sufficiently rich to isolate the role of general equilibrium effects, credit market imperfections, and different forms of human capital accumulation. The large welfare gains we obtain cannot be attained without age dependence, nor can they be attained with age‐dependent taxes if progressivity of labor income taxes and capital income tax rates are not suitably adjusted to profit from the complementarity of these instruments.