This paper develops a simple life-cycle model that embeds a theory of debt restrictions based on the existence of inalienable property rights a la Kehoe and Levine [1993. Debt constrained asset markets. Review of Economic Studies 60(4), 865-888; 2001. Liquidity constrained markets versus debt...

In life-cycle economies, where an individual's optimal consumption-work plan is almost never constant, the optimal marginal tax rates on capital and labor income vary with age. Conversely, the progressivity imbedded in the U.S. tax code implies that marginal tax rates vary with age because tax...