Discussion paper

DP8425 The Tax Benefit of Income Smoothing

A worker can contribute pre-tax dollars to a private pension plan. Under a progressive tax, this feature reduces income taxes. Ippolito (1986} argues that an individual in 1979 can reduce lifetime taxes by 20%. We re-examine his analysis using the complete time-series of US income tax history and find that the tax benefit of income smoothing is much smaller.

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Citation

Rydqvist, K, J Spizman and S Schwartz (2011), ‘DP8425 The Tax Benefit of Income Smoothing‘, CEPR Discussion Paper No. 8425. CEPR Press, Paris & London. https://cepr.org/publications/dp8425