This paper investigates a simplified life-cycle model incorporating entrepreneurial activity to determine tax policies that achieve specific revenue targets with minimal welfare distortion. We evaluate various tax instruments, including federal income tax, capital income tax, and consumption tax. Our findings reveal that increasing tax revenue through a combination of higher levels and progressivity in consumption tax is particularly welfare-enhancing. The optimal level of consumption tax progressivity remains consistent across different revenue growth targets. Additionally, the inclusion of entrepreneurship in the model significantly impacts wealth distribution, highlighting the importance of this factor in policy design. This study provides valuable insights for policymakers on optimising tax systems to balance revenue generation with social welfare.

Khademul Chowdhury, a PhD candidate at the Research School of Economics at the Australian National University and is currently engaged in his research on computational macroeconomics and tax policy under the supervision of Dr Cagri Kumru. As a Deputy Commissioner of Taxes at the National Board of Revenue, Bangladesh, Khademul excelled in assessing income tax, revenue forecasting, formulating tax policies, transfer pricing and tax expenditure analysis. He was a World Bank-funded project consultant in the Finance Division of the Government of the People’s Republic of Bangladesh. His contributions were crucial in evaluating fiscal policy impacts on the national economy.

Khademul has extensive training in macroeconomic tools from the London School of Economics and the University of Wuerzburg. He holds a Master of Economics from ANU, an MBA (major in Finance) from IBA, University of Dhaka and a BSc in Electrical and Electronic Engineering from Bangladesh University of Engineering and Technology. He has been a research student of the Centre of Excellence for Population Ageing Research (CEPAR) since 2022.