Equalizing outcomes vs. equalizing opportunities
Subtitle: optimal taxation when children's abilities depend on parents' resources
By: Alexander Gelber, Matthew Weinzierl
Contributors: Weinzierl, Matthew; Harvard Business School
Series: Working paper / Harvard Business School -- 13-014; Working paper (Harvard Business School) -- 13-014.
Publisher: Harvard Business School
Published: 2012
Place of publication: [Boston]
Language: eng
Number of pages: 50
Subjects: Children; Econometric models; Taxation; Income distribution
Description: Empirical research suggests that parents' economic resources affect their children's future earnings abilities. Optimal tax policy therefore will treat future ability distributions as endogenous to current taxes. We model this endogeneity, calibrate the model to match estimates of the intergenerational transmission of earnings ability in the United States, and use the model to simulate optimal policy numerically. Optimal policy is more redistributive toward low-income parents than existing U.S. tax policy. The optimal policy increases the probability that low-income children move up the economic ladder, generating a present-value welfare gain of 1.28% of consumption in our baseline case.
Notes: "August 2012" -- Publisher's website.

Includes bibliographical references.