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Taxation and Heterogeneous Preferences

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  • Sören Blomquist
  • Vidar Christiansen

Abstract

Nonlinear income taxes and linear commodity taxes are analyzed when people differ with respect to ability, high-skill agents have heterogeneous preferences, and neither individual abilities nor preferences are observable. We characterize pure income tax optima, which may be bunching or separating optima. In particular, the income tax may not be able to distinguish between those low-income people who are low-skill and those who have a strong preference for leisure. As is shown, there may still be an effect on the optimum income tax schedule, as it will depend on the composition of the population with respect to types of individuals. Finally, the paper addresses what can be achieved by commodity taxes when preferences are heterogeneous - in particular, with respect to targeting groups that the income tax is incapable of discriminating between.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 64 (2008)
Issue (Month): 2 (June)
Pages: 218-244

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200806)64:2_218:tahp_2.0.tx_2-z

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Keywords: optimum taxation; heterogeneous preferences; asymmetric information;

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References

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  2. Blomquist, Sören & Micheletto, Luca, 2003. "Age Related Optimal Income Taxation," Working Paper Series 2003:7, Uppsala University, Department of Economics.
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Citations

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Cited by:
  1. Fleurbaey, Marc, 2006. "Is commodity taxation unfair?," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1765-1787, November.
  2. Matteo Bassi, 2012. "Optimal Libertarian Sin Taxes," CSEF Working Papers 317, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  3. Julien Daubanes & Pierre Lasserre, 2011. "Optimum Commodity Taxation with a Non-Renewable Resource," CER-ETH Economics working paper series 11/151, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  4. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2010. "Public Provision of Private Goods, Tagging and Optimal Income Taxation withHeterogeneity in Needs," CESifo Working Paper Series 3275, CESifo Group Munich.
  5. Peter Diamond & Johannes Spinnewijn, 2011. "Capital Income Taxes with Heterogeneous Discount Rates," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 52-76, November.
  6. Jukka Pirttilä & Sanna Tenhunen, 2005. "Pawns and Queens Revisited: Public Provision of Private Goods when Individuals make Mistakes," CESifo Working Paper Series 1466, CESifo Group Munich.
  7. Alan Krause, 2012. "Optimal Savings Taxation when Individuals have Different CRRA Utility Functions," Discussion Papers 12/13, Department of Economics, University of York.
  8. Hodler, Roland, 2008. "Leisure and redistribution," European Journal of Political Economy, Elsevier, vol. 24(2), pages 354-363, June.

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