Working Paper: NBER ID: w10099
Authors: Andrew B. Abel
Abstract: I examine optimal taxes in an overlapping generations economy in which each consumer's utility depends on consumption relative to a weighted average of consumption by others (the benchmark level of consumption) as well as on the level of the consumer's own consumption. The socially optimal balanced growth path is characterized by the Modified Golden Rule and by a condition on the intergenerational allocation of consumption in each period. A competitive economy can be induced to attain the social optimum by a lump-sum pay-as-you-go social security system and a tax on capital income.
Keywords: No keywords provided
JEL Codes: E21; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| consumers' utility (D11) | consumption (E21) |
| relative consumption (D11) | utility (L90) |
| social planner's patience (D15) | optimal tax rate on capital income (H21) |
| optimal tax rate (H21) | allocation of consumption across generations (D15) |
| benchmark level of consumption (D12) | utility (L90) |
| tax policies (H29) | consumption allocations (E21) |
| competitive economy (P19) | social optimum (D61) |