Optimal Dynamic Taxes
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.
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Copy CitationMikhail Golosov, Maxim Troshkin, and Aleh Tsyvinski, "Optimal Dynamic Taxes," NBER Working Paper 17642 (2011), https://doi.org/10.3386/w17642.Download Citation
Published Versions
"Optimal Taxation: Merging Micro and Macro Approaches" (with M. Troshkin and A. Tsyvinski), Journal of Money, Credit and Banking, Supplement to 43 (5), (2011): 147-174
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