TY  - JOUR
AU  - Golosov,Mikhail
AU  - Troshkin,Maxim
AU  - Tsyvinski,Aleh
TI  - Optimal Dynamic Taxes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17642
PY  - 2011
Y2  - December 2011
UR  - http://www.nber.org/papers/w17642
L1  - http://www.nber.org/papers/w17642.pdf
N1  - Author contact info:
Mikhail Golosov
Department of Economics
Princeton University
111 Fisher Hall
Princeton, NJ 08544
Tel: 609/258-4003
Fax: 609/258-6419
E-Mail: golosov@princeton.edu

Maxim Troshkin
Cornell University
Department of Economics
Uris Hall, Ithaca, NY 14853
Tel:  (607) 255-4254
Fax: (607) 255-2818
E-Mail: troshkin@cornell.edu

Aleh Tsyvinski
Department of Economics
Yale University
Box 208268
New Haven, CT  06520-8268
E-Mail: a.tsyvinski@yale.edu
AB  - We study optimal labor and savings distortions in a lifecycle model with idiosyncratic shocks. We show a tight connection between its recursive formulation and a static Mirrlees model with two goods, which allows us to derive elasticity-based expressions for the dynamic optimal distortions. We derive a generalization of a savings distortion for non-separable preferences and show that, under certain conditions, the labor wedge tends to zero for sufficiently high skills. We estimate skill distributions using individual data on the U.S. taxes and labor incomes. Computed optimal distortions decrease for sufficiently high incomes and increase with age.
ER  -