Journal Article

Social discounting, migration, and optimal taxation of savings

Valeria De Bonis and Luca Spataro

in Oxford Economic Papers

Volume 62, issue 3, pages 603-623
Published in print July 2010 | ISSN: 0030-7653
Published online September 2009 | e-ISSN: 1464-3812 | DOI: https://dx.doi.org/10.1093/oep/gpp032
Social discounting, migration, and optimal taxation of savings

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  • Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
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We study the problem of optimal inheritance and capital income taxation in an economy with migration. We find that, contrary to previous studies on OLG models, even if the utility function is assumed to be homothetic and separable in consumption and leisure, a non-zero tax result emerges whenever the policy maker attaches weights to the individual utility functions in the social welfare function that are allowed to vary through time, for example, according to the demographic dynamics of the economy. We also perform a welfare analysis of the choice among different social weights: the results depend on several factors, among which the extent of the distortions induced by the tax instruments vis-à-vis the suboptimality of the market allocation in an OLG economy, deriving from the disconnection among generations.

Keywords: E62; H21

Journal Article.  6741 words.  Illustrated.

Subjects: Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook ; Taxation, Subsidies, and Revenue

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