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Favorable tax treatment of older workers in general equilibrium
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE).
2025 (English)In: Macroeconomic Dynamics, ISSN 1365-1005, E-ISSN 1469-8056, Vol. 29, article id e119Article in journal (Refereed) Published
Abstract [en]

The present paper studies how to encourage longer careers by reducing labor income taxes for older workers. The analysis relies on numerical experiments within a general equilibrium overlapping generations (OLG) model that is calibrated to an average economy of the organisation for economic co-operation and development (OECD). I find that the policy can delay retirement and increase tax revenue and the capital stock if treatment occurs close to, and before, the preferred retirement age. A non-trivial share of the increased post-treatment labor supply can be explained by the substitution of hours worked from the pre-treatment career to the post-treatment career. Lowering the treatment age only leads to small changes in the aggregate labor supply, but is increasingly costly for the government in terms of forgone revenue. Tax shifting toward higher consumption taxes always increases welfare, while tax shifting toward higher capital or labor income taxes paid by younger workers only increases welfare if treatment occurs sufficiently late in the career.

Place, publisher, year, edition, pages
Cambridge University Press, 2025. Vol. 29, article id e119
Keywords [en]
Age-dependent taxation, OLG model, retirement
National Category
Economics
Identifiers
URN: urn:nbn:se:umu:diva-242440DOI: 10.1017/S1365100525100230ISI: 001530089400001Scopus ID: 2-s2.0-105011509217OAI: oai:DiVA.org:umu-242440DiVA, id: diva2:1986425
Funder
The Jan Wallander and Tom Hedelius FoundationTore Browaldhs stiftelse, P17-0217Available from: 2025-07-31 Created: 2025-07-31 Last updated: 2025-07-31Bibliographically approved

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Gustafsson, Johan

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CiteExportLink to record
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Citation style
  • apa
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Output format
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