Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/60816 
Year of Publication: 
2010
Series/Report no.: 
Staff Report No. 467
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
The paper studies a fiscal policy instrument that can reduce fiscal distortions, without affecting revenues, in a politically viable way. The instrument is a private contract (tax buyout), offered by the government to each individual citizen, whereby the citizen can choose to pay a fixed price up front in exchange for a given reduction in her tax rate for a prespecified period of time. We consider a dynamic overlapping-generations economy, calibrated to match several features of the U.S. income and wealth distribution, and show that, under simple pricing, the introduction of the buyout is revenue neutral and at the same time can benefit a significant fraction of the population and lead to sizable increases in labor supply, income, consumption, and welfare.
Subjects: 
Taxes
private information
distortions
JEL: 
E62
H21
Document Type: 
Working Paper

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