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The Timing of Redistribution

51 Pages Posted: 16 Jun 2008 Last revised: 9 Oct 2014

Gerhard Glomm

Indiana University Bloomington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Juergen Jung

Towson University - Department of Economics

Date Written: March 26, 2013

Abstract

We investigate whether late redistribution programs that can be targeted towards low income families, but may distort savings decisions, can “dominate” early redistribution programs that cannot be targeted due to information constraints. We use simple two-period OLG models with heterogeneous agents under six policy regimes: A model calibrated to the U.S. economy (benchmark), two early redistribution (lump sum) regimes, two (targeted) late redistribution regimes, and finally a model without taxes and redistribution. Redistribution programs are financed by a labor tax on the young and a capital tax on the old generation. We argue that late redistribution, if the programs are small in size, can dominate early redistribution in terms of welfare but not in terms of real output. Better targeting of low income households cannot completely offset savings distortions. In addition, we find that the optimal transfer and tax policy implies a capital tax of 100 percent and transfers exclusively to the young generation.

Keywords: Taxation Timing, Transfer Timing, Redistribution, Capital Accumulation, Optimal Taxation, Capital Taxation

JEL Classification: H20, H22

Suggested Citation

Glomm, Gerhard and Jung, Juergen, The Timing of Redistribution (March 26, 2013). CAEPR Working Paper No. 2008-015. Available at SSRN: https://ssrn.com/abstract=1144803 or http://dx.doi.org/10.2139/ssrn.1144803

Gerhard Glomm

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States
812-855-7256 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Juergen Jung (Contact Author)

Towson University - Department of Economics ( email )

Baltimore, MD
United States
812-345-9182 (Phone)

HOME PAGE: http://https://juejung.github.io/

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