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Open Access Publications from the University of California

Optimal taxation in life cycle models

  • Author(s): Peterman, William Ben
  • et al.

Whether to tax capital is a central question in both macroeconomics and public finance. Previous research demonstrates that in a life cycle model the optimal tax on capital is typically non-zero for a variety of reasons. My research analytically and quantitatively measures the strength of the different motives for a non-zero tax on capital in a life cycle model. The first chapter considers the impact on the optimal tax policy of including human capital accumulation endogenously. The second chapter measures the relative strength of each motive generally understood to produce a large optimal tax on capital in a standard life cycle model with exogenous age-specific human capital accumulation. The first two chapters demonstrate that the level of the Frisch labor supply elasticity, as well as the profile over the lifetime, have a dramatic impact on the optimal tax policy. The third chapter uses a pseudo panel to estimate the Frisch labor supply elasticity

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