SFB 303 Discussion Paper No. A - 305
Author: Keuschnigg, Christian
Title: Intergenerationally Neutral Taxation
Abstract: The paper proposes a basic definition of intergenerational neutrality
of fiscal policy in the life cycle model. The requirement of intergenerational
neutrality imposes a restriction on the use of fiscal instruments that
eliminates any welfare effects from intergenerational redistribution and
thereby isolates the price effects of fiscal policy. This restriction
endogenously determines a distribution of tax revenues in the form of
transfers to young and old agents which ensures intergenerational neutrality.
The endogenously determined share of tax revenues rebated to young and old
agents is interpreted as the intergenerational incidence of the tax system.
If revenues are not refunded to agents according to the intergenerational
incidence of taxes, then redistribution in one or the other direction is
installed. Hence, the derivation of intergenerationally neutral tax effects
provides a benchmark for evaluating the redistributive content of an
arbitrary fiscal program.
Keywords: Intergenerational tax incidence, intergenerational redistribution,
intergenerationally neutral taxation
JEL-Classification-Number: 321, 323
Creation-Date: April 1991
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