Corresponding author: Guy Laroque, INSEE-CREST J360, 15 Boulevard Gabriel Péri, 92245 Malakoff Cedex, France. Email: email@example.com.
On Income and Wealth Taxation in A Life-Cycle Model with Extensive Labour Supply*
Article first published online: 21 JUL 2011
© 2011 The Author(s). The Economic Journal © 2011 Royal Economic Society
The Economic Journal
Volume 121, Issue 554, pages F144–F161, August 2011
How to Cite
Laroque, G. (2011), On Income and Wealth Taxation in A Life-Cycle Model with Extensive Labour Supply. The Economic Journal, 121: F144–F161. doi: 10.1111/j.1468-0297.2011.02445.x
I have benefited from the comments of Richard Blundell, Philippe Choné, Stéphane Gauthier and Anne Laferrère and from discussions with Nicola Pavoni. I am also most grateful to the editor and an anonymous referee who have provided a number of valuable suggestions.
- Issue published online: 21 JUL 2011
- Article first published online: 21 JUL 2011
In a stationary life-cycle model with extensive labour supply, two forms of taxation are studied: non-linear income taxation and linear wealth taxation. In the life-cycle model, the social weights of the dynasties depend on their permanent incomes, not on the observed taxable current income. A tax on wealth then can complement income tax as a redistributive tool. The derivative of social welfare with respect to the wealth tax rate at the no-tax point is computed. It is positive whenever permanent income is positively correlated with aggregate life time savings. This result is illustrated on a numerical example.