Francesca Parodi - Website
Primary: Public Finance
Secondary: Life Cycle Behaviour, Applied Micro, Macroeconomic Dynamics
Abstract - Consumption and personal income taxes are key policy instruments. They are both major sources of government revenue and defining elements in social insurance and redistribution policies. In this paper, I adopt a dynamic structural approach to study the design of these taxes and their interactions. I develop a life-cycle model of household consumption, saving and employment choices with heterogeneous preferences, multiple non-durable goods and partially irreversible durables. I estimate the model on micro data and show that its rich structure is key in reproducing the empirical patterns of households’ life-cycle economic behavior. I then use the estimated model to quantitatively characterize the optimal tax rates on different commodities and on labor income in a utilitarian framework and under alternative scenarios of preference heterogeneity. I find that durables should be subsidized in presence of pre-commitment and uncertainty and that the optimal combination of taxes on non-durables and labor income crucially depends on the degree of preference heterogeneity. Allowing for a more general social welfare criterion with varying degrees of government inequality aversion, I show that the model can rationalize the tax systems observed in reality and that differentiated consumption taxes - with higher rates on durables - serve a redistributive purpose jointly with the progressivity of labor income taxes.
- Richard Blundell (Primary Advisor)
- Mariacristina De Nardi
- Orazio Attanasio
- Monica Costa Dias