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Title: Equalizing Outcomes and Equalizing Opportunities: Optimal Taxation when Children's Abilities Depend on Parents' Resources
Resulting in 1 citation.
1. Gelber, Alexander
Weinzierl, Matthew C.
Equalizing Outcomes and Equalizing Opportunities: Optimal Taxation when Children's Abilities Depend on Parents' Resources
Working Paper 13-014, Harvard Business School, Harvard University, April 2014
Cohort(s): Children of the NLSY79, NLSY79
Publisher: Harvard Business School
Keyword(s): Achievement; Armed Forces Qualifications Test (AFQT); Children, Academic Development; Earned Income Tax Credit (EITC); Family Income; Family Resources; Intergenerational Patterns/Transmission; Peabody Individual Achievement Test (PIAT- Math); Peabody Individual Achievement Test (PIAT- Reading); Taxes

Permission to reprint the abstract has not been received from the publisher.

Empirical research suggests that parents' economic resources affect their children's future earnings abilities. Optimal tax policy therefore treats future ability distributions as endogenous to current taxes. We model this endogeneity, calibrate the model to match estimates of the intergenerational transmission of earnings ability in the United States, and use the model to simulate such an optimal policy numerically. The optimal policy in this context is more redistributive toward low-income parents than existing U.S. tax policy. It also increases the probability that low-income children move up the economic ladder, generating a present-value welfare gain of one and three-quarters percent of consumption in our baseline case.
Bibliography Citation
Gelber, Alexander and Matthew C. Weinzierl. "Equalizing Outcomes and Equalizing Opportunities: Optimal Taxation when Children's Abilities Depend on Parents' Resources." Working Paper 13-014, Harvard Business School, Harvard University, April 2014.