Working Paper: NBER ID: w13362
Authors: Borys Grochulski; Narayana Kocherlakota
Abstract: In this paper, we consider economies in which agents are privately informed about their skills, which are evolving stochastically over time. We require agents' preferences to be weakly separable between the lifetime paths of consumption and labor. However, we allow for intertemporal nonseparabilities in preferences like habit formation. We show that such nonseparabilities imply that optimal asset income taxes are necessarily retrospective in nature. We show that under weak conditions, it is possible to implement a socially optimal allocation using a social security system in which taxes on wealth are linear, and taxes/transfers are history-dependent only at retirement. The average asset income tax in this system is zero.
Keywords: No keywords provided
JEL Codes: E60; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonseparable preferences (D10) | optimal asset income taxation (H21) |
| future labor income (J39) | optimal asset income taxation (H21) |
| agents' skill levels (L85) | future labor income (J39) |
| future labor income (J39) | retrospective taxation (H26) |
| nonseparable preferences (D10) | retrospective taxation (H26) |
| optimal conditions (C61) | socially optimal allocations (D61) |
| preferences (D11) | tax policy design (H29) |