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Oxford Economic Papers Advance Access published online on September 23, 2009
Oxford Economic Papers, doi:10.1093/oep/gpp032
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© Oxford University Press 2009 All rights reserved

Social discounting, migration, and optimal taxation of savings

Valeria De Bonis* and Luca Spataro{dagger}

* Dipartimento di Scienze Economiche, Università di Pisa, and CHILD, via C. Ridolfi 10, 56124, Pisa, Italy; e-mail: debonis{at}ec.unipi.it
{dagger} Dipartimento di Scienze Economiche, Università di Pisa, and CHILD; e-mail: l.spataro{at}ec.unipi.it

JEL classifications: E62, H21


  Abstract

We study the problem of optimal inheritance and capital income taxation in an economy with migration. We find that, contrary to previous studies on OLG models, even if the utility function is assumed to be homothetic and separable in consumption and leisure, a non-zero tax result emerges whenever the policy maker attaches weights to the individual utility functions in the social welfare function that are allowed to vary through time, for example, according to the demographic dynamics of the economy. We also perform a welfare analysis of the choice among different social weights: the results depend on several factors, among which the extent of the distortions induced by the tax instruments vis-à-vis the suboptimality of the market allocation in an OLG economy, deriving from the disconnection among generations.


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