By Peter A. Diamond
In this ebook, Peter Diamond analyzes social safeguard as a particular
instance of optimum taxation conception. Assuming an international of incomplete markets and
uneven info, he makes use of a number of easy types to light up the
monetary forces that undergo on particular social protection coverage concerns. the focal point is on
the measure of progressivity fascinating in social safeguard and the layout of
incentives to hold up retirement past the earliest age of eligibility for benefits.
ahead of interpreting those versions, Diamond offers introductions to optimum source of revenue tax
thought and the idea of incomplete markets. He contains contemporary theoretical
advancements similar to time-inconsistent personal tastes into his analyses and exhibits that
distorting taxes and a degree of progressivity in advantages are fascinating. Diamond
additionally discusses social defense reform, with a spotlight on Germany.
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Extra info for Taxation, Incomplete Markets, and Social Security (Munich Lectures)
This question could be approached by having linear taxes on savings or by considering a more general nonlinear tax problem assuming that the government can measure consumption in each period. If we assume a separable structure of preferences between consumption and labor and the usual model of onedimensional differences in the population with differences only in productivity, then there is no reason to have different marginal rates of substitution between labor and each of the two consumptions in the two periods—the optimum would not use differential taxation of different consumption if that were an added policy tool (Atkinson and Stiglitz 1976; Mirrlees 1976).
Plausibly, utility functions do vary with age. Plausibly, the index of relative risk aversion of the elderly is larger than that of the young. Then there is less variation in post-retirement consumption than in pre-retirement consumption. Note that use of the same progressive income tax in each period is not likely to reproduce this pattern, even if pension savings is taxed on an EET basis—contributions and asset earnings tax exempt, with beneﬁts taxable. 3 Quasi-Linear Case While the additive case is familiar and is the two-period version of the widely used integral or sum of period utilities, neither familiarity nor wide use is really a justiﬁcation for reliance on these preferences, since they do not appear empirically plausible.
R1 ½xn < ð>ÞR 2 ½cn implies dðcn =xn Þ < ð>Þ0: dn ð3:8Þ This condition is stated in terms of endogenous optimal consumption levels. If the utility function is the same in each period, then the replacement rate is less than (greater than) one as the utility discount rate is greater than (less than) the real return on production. 8). This determines whether there is more or less progressivity built into redistribution of the elderly relative to the young. Plausibly, utility functions do vary with age.