infonet-economy

The paper proposes a basic definition of intergenerational neutrality in the overlapping generations model when agents have a pure life cycle motive of savings. The derivation of intergenerationally neutral tax effects provides a redistribution free benchmark case that isolates the relative price effects of taxes and the deadweight losses associated with them. The paper clarifies the intergenerational incidence which has to be determined simultaneously with the substitution effects of taxes on savings. A tax reform example demonstrates how taxes with diverging intergenerational incidence may be combined to achieve intergenerational neutrality. Finally, the paper extends the analysis of generational tax incidence to the case of a small open economy.