Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/208088 
Year of Publication: 
2019
Series/Report no.: 
Discussion Paper No. 188
Publisher: 
Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition, München und Berlin
Abstract: 
Individuals vary considerably in how much they earn during their lifetimes. We study how the tax-and-transfer system o sets inequalities in lifetime earnings, which would otherwise translate into differences in living standards. Based on a life-cycle model, we find that redistribution by taxes and transfers off sets 54% of the inequality in lifetime earnings that is due to heterogeneous skill endowments. Meanwhile, taxes and transfers insure 45% of lifetime earnings risk. Taxes would provide more insurance if based on lifetime instead of annual earnings. Requiring wealthy individuals to repay social assistance received when younger would strengthen the insurance and redistributive functions of social assistance.
Subjects: 
Lifetime earnings
lifetime income
tax-and-transfer system
taxation
unemployment insurance
disability benefits
social assistance
inequality
redistribution
insurance
endowments
risk
dynamic life-cycle models
JEL: 
D63
H23
I24
I38
J22
J31
Document Type: 
Working Paper

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