Redistribution with Unequal Life Expectancy

Arbeitspapier

This paper introduces life expectancy inequality into a tractable Mirrleesian life-cycle model and characterizes the optimal income tax policy using theory and calibration. A positive association between life expectancy and income counteracts the well-known static pattern of declining marginal utility. As a result, the mechanical value of redistribution is reduced at all income levels. Moreover, the pension wedge becomes a novel determinant of optimal taxation, motivating relatively lower optimal tax rates for low earners and relatively higher optimal tax rates for high earners. Quantitatively, the effects of the mechanical value of redistribution dominate, and the optimal marginal tax rates fall by up to 10 percentage points when life expectancy is heterogeneous.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 10684

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Taxation and Subsidies: Efficiency; Optimal Taxation
• Subject: optimal taxation ; redistribution ; life expectancy ; inequality

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Koehne, Sebastian
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/282372
• Last update: 10.03.2025, 11:41 AM CET