Singles, couples, time-averaging, and taxation
Singles, couples, time-averaging, and taxation
We study consequences of tax reforms in an incomplete markets overlapping generations model in which male and female workers with different ability levels self-insure by acquiring a risk-free bond, “time-averaging” their life-cycle work schedules and career lengths, and possibly by marrying and divorcing. We study incidences of a flat-rate tax and in combination with stylized versions of a negative income tax (NIT) or an earned income tax credit (EITC). Tax reforms have diverse effects that differ by workers’ abilities, marital statuses, and ages. A new “ex post-ex ante” criterion helps us to sort through welfare incidences. The importance of labor supply responses at the extensive margin makes the EITC better for redistribution than the NIT.
EITC, Flat-rate tax, Heterogeneous households, Labor supply, Negative income tax, Precautionary saving, Social security, Time-averaging
Stepanchuk, Serhiy
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Holter, Hans
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Sargent, Thomas
5c673644-c9ac-45bf-80a7-a1d8034fa8f6
Ljungqvist, Lars
8e1f47b5-cf5d-4d11-bfc5-2772074fd0f3
Stepanchuk, Serhiy
ab625a3a-3db4-411f-90a4-1a2d2f9a0b17
Holter, Hans
5414f609-f25b-4b5e-bc32-dd5716f0f29a
Sargent, Thomas
5c673644-c9ac-45bf-80a7-a1d8034fa8f6
Ljungqvist, Lars
8e1f47b5-cf5d-4d11-bfc5-2772074fd0f3
Stepanchuk, Serhiy, Holter, Hans, Sargent, Thomas and Ljungqvist, Lars
(2024)
Singles, couples, time-averaging, and taxation.
Journal of Monetary Economics, [103702].
(doi:10.1016/j.jmoneco.2024.103702).
Abstract
We study consequences of tax reforms in an incomplete markets overlapping generations model in which male and female workers with different ability levels self-insure by acquiring a risk-free bond, “time-averaging” their life-cycle work schedules and career lengths, and possibly by marrying and divorcing. We study incidences of a flat-rate tax and in combination with stylized versions of a negative income tax (NIT) or an earned income tax credit (EITC). Tax reforms have diverse effects that differ by workers’ abilities, marital statuses, and ages. A new “ex post-ex ante” criterion helps us to sort through welfare incidences. The importance of labor supply responses at the extensive margin makes the EITC better for redistribution than the NIT.
Text
Time_Averaging
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Accepted/In Press date: 25 October 2024
e-pub ahead of print date: 16 November 2024
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© 2024
Keywords:
EITC, Flat-rate tax, Heterogeneous households, Labor supply, Negative income tax, Precautionary saving, Social security, Time-averaging
Identifiers
Local EPrints ID: 497468
URI: http://eprints.soton.ac.uk/id/eprint/497468
ISSN: 0304-3932
PURE UUID: 1532ef37-1fbc-49b5-8c01-41befe48090d
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Date deposited: 23 Jan 2025 17:36
Last modified: 23 Jan 2025 17:36
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Contributors
Author:
Hans Holter
Author:
Thomas Sargent
Author:
Lars Ljungqvist
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