This paper considers the impact on optimal tax policy of including endogenously determined retirement in a life cycle model. Allowing individuals to determine when they retire causes the optimal tax on capital to increase by 75% because of two implicit changes in the aggregate labor supply...

There are large differences between the microeconometeric estimates of the Frisch labor supply elasticity (0-0.5) and the values used by macroeconomists to calibrate general equilibrium models (2-4). The microeconometric estimates of the Frisch are typically estimated by regressing changes in...