Tax Buyouts

Del Negro, Marco; Perri, Fabrizio; Schivardi, Fabiano

doi:10.2139/ssrn.1661887

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Tax Buyouts

FRB of New York Staff Report No. 467

43 Pages Posted: 21 Aug 2010

See all articles by Marco Del Negro

Fabrizio Perri

Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Fabiano Schivardi

Luiss Guido Carli - Department of Economics and Finance; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written: August 2010

Abstract

The paper studies a fiscal policy instrument that can reduce fiscal distortions, without affecting revenues, in a politically viable way. The instrument is a private contract (tax buyout), offered by the government to each individual citizen, whereby the citizen can choose to pay a fixed price up front in exchange for a given reduction in her tax rate for a pre-specified period of time. We consider a dynamic overlapping-generations economy, calibrated to match several features of the U.S. income and wealth distribution, and show that, under simple pricing, the introduction of the buyout is revenue neutral and at the same time can benefit a significant fraction of the population and lead to sizable increases in labor supply, income, consumption, and welfare.

Keywords: taxes, private information, distortions

JEL Classification: E62, H21

Suggested Citation: Suggested Citation

Del Negro, Marco and Perri, Fabrizio and Schivardi, Fabiano, Tax Buyouts (August 2010). FRB of New York Staff Report No. 467, Available at SSRN: https://ssrn.com/abstract=1661887 or http://dx.doi.org/10.2139/ssrn.1661887