Working Paper: NBER ID: w15847
Authors: Marco Del Negro; Fabrizio Perri; Fabiano Schivardi
Abstract: The paper studies a fiscal policy instrument that can reduce fiscal distortions without affecting revenues, in a politically viable way. The instrument is a private contract (tax buyout), offered by the government to each citizen, whereby the citizen can choose to pay a fixed price in exchange for a given reduction in her tax rate for a period of time. We introduce the tax buyout in a dynamic overlapping generations economy, calibrated to match several features of the US income, taxes and wealth distributions. Under simple pricing, the introduction of the buyout is revenue neutral but, by reducing distortions, it benefits a significant fraction of the population and leads to sizable increases in aggregate labor supply, income and consumption.
Keywords: Tax Buyouts; Fiscal Policy; Economic Activity
JEL Codes: E62; H21; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax buyouts (H20) | reduction in fiscal distortions (H31) |
| reduction in fiscal distortions (H31) | benefits to a significant fraction of the population (I14) |
| benefits to a significant fraction of the population (I14) | increase in aggregate labor supply (J20) |
| benefits to a significant fraction of the population (I14) | increase in income (E25) |
| benefits to a significant fraction of the population (I14) | increase in consumption (E21) |
| tax buyouts (H20) | increase in GDP (E20) |
| tax buyouts (H20) | increase in lifetime welfare for non-contract purchasers (D69) |