Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235358 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8988
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
This paper studies the life-cycle effects of favorable marginal tax treatment of older workers on their optimal life cycle labor supply, retirement timing, and savings. I develop a structural model in continuous time where the life-cycle of a representative agent is divided into three distinct phases: pre-treatment, post-treatment, and retirement. Solutions for consumption/savings, labor supply/leisure, and retirement timing are then obtained by solving the model as a salvage value problem. I then calibrate the model to Swedish earnings data and find that the increased extensive margin labor supply is partially offset by a reduction in hours worked during the pre-treatment period. The total effect is however an increase in life-cycle labor supply and consumption.
Subjects: 
retirement age
life cycle
tax heterogeneity
savings consumption
leisure
JEL: 
D15
J22
J26
Document Type: 
Working Paper
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