A rational,economic model of paygo tax rates |
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| Affiliation: | 1. Paris School of Economics (EHESS), 48 Blvd. Jourdan, 75014 Paris, France;2. OECD, France;3. Hebrew University of Jerusalem, Israel;4. Brown University, United States;5. MIT, United States;1. Servicio de Urgencias, Hospital Universitario Puerta de Hierro-Majadahonda, Majadahonda, Madrid, España;2. Universidad Alfonso X El Sabio, Madrid, España;3. Servicio de Farmacia, Hospital Universitario Puerta de Hierro-Majadahonda, Majadahonda, Madrid, España;4. Servicio de Medicina Interna, Hospital Severo Ochoa de Leganés, Leganés, Madrid, España;1. Department of Mathematical Analysis and Applications of Mathematics, Faculty of Science, Palacký University, 17. listopadu 12, 771 46 Olomouc, Czech Republic;2. Department for Analysis and Scientific Computing, Vienna University of Technology, Wiedner Hauptstraße 8–10, A-1040 Wien, Austria;1. Department of Economics, Dartmouth College, Hanover, NH 03755-3514, United States;2. NBER, United States;3. Department of Economics, Texas Tech University, Lubbock, TX 79409, United States;4. Department of Economics, Dartmouth College, Hanover, NH 03755-3514, United States;1. School of Economics and Management, Tongji University, Shanghai 200092, China;2. School of Mathematical Sciences, Liaocheng University, Liaocheng 252059, China |
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| Abstract: | We argue that paygo rates are determined by a representative agent and a benevolent government jointly maximizing the expected life-time utility of the agent. The distributions of labor and capital income are calculated from national data on real GDP, real wages and the real return to capital since 1950. With uniform risk aversion, predicted rates explain 83% of the variance of observed rates. The globalization of capital markets would lead to convergence of paygo rates. Our results are immune to crises like 2008. |
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| Keywords: | Paygo Savings Risk aversion OLG National capital markets |
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