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Optimal Progressivity with Age-Dependent Taxation
This paper studies optimal taxation of labor earnings when the degree of tax progressivity is allowed to vary with age. We analyze this question in a tractable equilibrium overlapping-generations model that incorporates a number of salient trade-offs in tax design. Tax progressivity provides insurance against ex-ante heterogeneity and earnings uncertainty that missing markets fail to deliver. However, taxes distort labor supply and human capital investments. Uninsurable risk cumulates over the life cycle, and thus the welfare gains from income compression via progressive taxation increase ...
Journal Article
Fiscal Sustainability: A Cross-Country Analysis
Since the global financial crisis, public debt has risen rapidly in many advanced and emerging market economies. Every country faces a fiscal limit at which taxes and spending can no longer adjust to stabilize debt. But quantifying fiscal limits can be challenging. Different countries have different capacities to service their debt. Moreover, two countries with similar debt levels may face drastically different default risks. {{p}} Huixin Bi introduces a new, country-specific framework of fiscal limits to quantify the maximum level of debt a government can sustain given its economic and ...