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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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Citations

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Cited by:
  1. Jukka Pirttilä & Sanna Tenhunen, 2008. "Pawns and queens revisited: public provision of private goods when individuals make mistakes," International Tax and Public Finance, Springer, vol. 15(5), pages 599-619, October.
  2. 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.
  3. Marc Fleurbaey, 2005. "Is Commodity Taxation Unfair?," IDEP Working Papers 0502, Institut d'economie publique (IDEP), Marseille, France, revised Jan 2005.
  4. 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.
  5. Julien Daubanes & Pierre Lasserre, 2011. "Optimum Commodity Taxation with a Non-Renewable Resource," CIRANO Working Papers 2011s-05, CIRANO.
  6. Matteo Bassi, 2012. "Optimal Libertarian Sin Taxes," CSEF Working Papers 317, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  7. Hodler, Roland, 2008. "Leisure and redistribution," European Journal of Political Economy, Elsevier, vol. 24(2), pages 354-363, June.
  8. Alan Krause, 2012. "Optimal Savings Taxation when Individuals have Different CRRA Utility Functions," Discussion Papers 12/13, Department of Economics, University of York.
  9. Jacobs, Bas & Schindler, Dirk, 2012. "On the desirability of taxing capital income in optimal social insurance," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 853-868.

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