A.K. : progressive taxes are bad
TWP : include idiosyncratic earnings uncertainty
Compares two steady states:
welfare increases when moving from a
proportional to a progressive tax system
Critique
A.K. : certainty, agents have perfect foresight
- the benchmark model
TWP: there may be welfare loss in the transition
- very time demanding
Goal
A simpler model + a faster computer
(+ a faster program?)
Evaluate welfare change in transition
LSRA
Future agenda
Endogenous Markov transition probabilities and wage bargaining process
Endogenous unemployment probabilities and optimal insurance system
An optimal public sector (taxes, pensions)
Stochastic health shocks and optimal insurance system
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