A Life-cycle, Human Capital Model of the Labor Supply Response to Negative Income Taxation PDF Download
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Author: David L. Horner
Publisher:
ISBN:
Category : African American men
Languages : en
Pages : 112
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Author: David L. Horner
Publisher:
ISBN:
Category : African American men
Languages : en
Pages : 112
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Book Description
Author: Fatih Guvenen
Publisher: DIANE Publishing
ISBN: 1437934900
Category : Business & Economics
Languages : en
Pages : 57
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Book Description
Wage inequality has been significantly higher in the U.S. than in continental European countries since the 1970s. This report studies the role of labor income tax policies (LITP) for understanding these facts. Countries with more progressive LITP have significantly lower before-tax wage inequality at different points in time. Progressivity is also negatively correlated with the rise in wage inequality during this period. Wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks. Progressive taxation compresses the (after-tax) wage structure, thereby distorting the incentives to accumulate human capital, in turn reducing the cross-sectional dispersion of (before-tax) wages. Illustrations. This is a print-on-demand publication; it is not an original.
Author: Michael P. Keane
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Stefanie Stantcheva
Publisher:
ISBN:
Category : Human capital
Languages : en
Pages : 53
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Book Description
This paper derives optimal income tax and human capital policies in a dynamic life cycle model of labor supply and risky human capital formation. The wage is a function of both stochastic, persistent, and exogenous "ability'' and endogenous human capital. Human capital is acquired throughout life through monetary expenses. The government faces asymmetric information regarding the initial ability of agents and the lifetime evolution of ability, as well as the labor supply. The optimal subsidy on human capital expenses is determined by three considerations: counterbalancing distortions to human capital investment from the taxation of wage and capital income, encouraging labor supply, and providing insurance against adverse draws from the productivity distribution. When the wage elasticity with respect to ability is increasing in human capital, the optimal subsidy involves less than full deductibility of human capital expenses on the tax base, and falls with age. I consider two ways to implement the optimum: income contingent loans, and a tax scheme that allows for a deferred deductibility of human capital expenses. Numerical results are presented that suggest that full dynamic risk-adjusted deductibility of expenses might be close to optimal, and that simple linear age-dependent policies can achieve most of the welfare gain from the second best.
Author: Xiaodong Fan
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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We develop and estimate a life-cycle model in which individuals make decisions about consumption, human capital investment, and labor supply and use it to analyze changes in Social Security rules. The most important aspect of our paper is human capital towards the end of the life cycle which responds to changes in the rules. Retirement arises endogenously as part of the labor supply decision. The model allows for both an endogenous wage process through human capital investment (which is typically assumed exogenous in the retirement literature), an endogenous retirement decision (which is typically assumed exogenous in the human capital literature), and accounts for the Social Security system. We estimate the model using indirect inference to match the life-cycle profiles of employment and measured wages from the SIPP data. The model replicates the main features of the data--in particular the large increase in measured wages and small increase in labor supply at the beginning of the life cycle as well as the small decrease in measured wages but large decrease in labor supply at the end of the life cycle. We use the model to estimate the effects of various changes to tax and Social Security policies and show that allowing for human capital accumulation is critical.
Author: Bas Jacobs
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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In a two-period life-cycle model with ex ante homogeneous households, earnings risk, and a general earnings function, we derive the optimal linear labor tax rate and optimal linear education subsidies. The optimal income tax trades off social insurance against incentives to work. Education subsidies are not used for social insurance, but they are only targeted at offsetting the distortions of the labor tax and internalizing a fiscal externality. Both optimal education subsidies and tax rates increase if labor and education are more complementary, because education subsidies indirectly lower labor tax distortions by stimulating labor supply. Optimal education subsidies (taxes) also correct non-tax distortions arising from missing insurance markets. Education subsidies internalize a positive (negative) fiscal externality if there is underinvestment (overinvestment) in education because of risk. Education policy unambiguously allows for more social insurance if education is a risky activity. However, if education hedges against labor-market risk, optimal tax rates could be lower than in the case without education subsidies.
Author: Mr.Gian Milesi-Ferretti
Publisher: International Monetary Fund
ISBN: 1451848234
Category : Business & Economics
Languages : en
Pages : 38
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Book Description
The effects of income and consumption taxation are examined in the context of models in which the growth process is driven by the accumulation of human and physical capital. The different channels through which these taxes affect economic growth are discussed, and it is shown that in general the taxation of factor incomes (human and physical capital) is growth-reducing. The effects of consumption taxation on growth depend crucially on the elasticity of labor supply, and therefore on the specification of the leisure activity. The paper also derives some implications for the optimal intertemporal choice of tax instruments.
Author: Ali Khan
Publisher: JAI Press
ISBN:
Category : Business & Economics
Languages : en
Pages : 256
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Book Description
Monograph essays examining the effects of human capital development on income distribution and economic and social development - discusses poverty measurement, the likely implications of economic growth, effects of guaranteed income on education and educational level, impact of inflation on welfare, etc., develops an economic model incorporating growth and education, and includes case studies. Graphs and references.
Author: Michael P. Keane
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
The standard life-cycle labour supply model accounts for asset accumulation, but ignores human capital investment. This article describes some recent work that introduces human capital into the standard model. This has some interesting, and even surprising, implications for labour supply elasticities. In particular, once we account for the effects of human capital, it appears that labour supply elasticities may be much larger than conventional wisdom would suggest. This, in turn, implies that the efficiency costs of labour income taxation may be much larger than is commonly assumed. Consequently, labour income taxation should be viewed as comparably costly to other types of taxation (such as capital income taxation).
Author: Fatih Guvenen
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Wage inequality has been significantly higher in the United States than in continental European countries (CEU) since the 1970s. Moreover, this inequality gap has further widened during this period as the US has experienced a large increase in wage inequality, whereas the CEU has seen only modest changes. This paper studies the role of labor income tax policies for understanding these facts, focusing on male workers. We construct a life cycle model in which individuals decide each period whether to go to school, work, or stay non-employed. Individuals can accumulate skills either in school or while working. Wage inequality arises from differences across individuals in their ability to learn new skills as well as from idiosyncratic shocks. Progressive taxation compresses the (after-tax) wage structure, thereby distorting the incentives to accumulate human capital, in turn reducing the cross-sectional dispersion of (before-tax) wages. Consistent with the model, we empirically document that countries with more progressive labor income tax schedules have (i) significantly lower before-tax wage inequality at different points in time and (ii) experienced a smaller rise in wage inequality since the early 1980s. We then study the calibrated model and find that these policies can account for half of the difference between the US and the CEU in overall wage inequality and 84% of the difference in inequality at the upper end (log 90-50 differential). In a two-country comparison between the US and Germany, the combination of skill-biased technical change and changing progressivity of tax schedules explains all the difference between the evolution of inequality in these two countries since the early 1980s.
