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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. Bastani, Spencer & Blomquist, Sören & Micheletto, Luca, 2010. "Public Provision of Private Goods, Tagging and Optimal Income Taxation with Heterogeneity in Needs," Working Paper Series, Center for Fiscal Studies 2010:14, Uppsala University, Department of Economics.
  2. Peter A. Diamond & Johannes Spinnewijn, 2009. "Capital Income Taxes with Heterogeneous Discount Rates," NBER Working Papers 15115, National Bureau of Economic Research, Inc.
  3. Bas Jacobs & Dirk Schindler, 2012. "On the Desirability of Taxing Capital Income in Optimal Social Insurance," Working Paper Series of the Department of Economics, University of Konstanz 2012-02, Department of Economics, University of Konstanz.
  4. 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.
  5. Matteo Bassi, 2012. "Optimal Libertarian Sin Taxes," CSEF Working Papers 317, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  6. Fleurbaey, Marc, 2006. "Is commodity taxation unfair?," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1765-1787, November.
  7. Hodler, Roland, 2008. "Leisure and redistribution," European Journal of Political Economy, Elsevier, vol. 24(2), pages 354-363, June.
  8. Matti Tuomala & Sanna Tenhunen, 2013. "On the design of an optimal non-linear tax/pension system with habit formation," International Tax and Public Finance, Springer, vol. 20(3), pages 485-512, June.
  9. 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.
  10. Alan Krause, 2012. "Optimal Savings Taxation when Individuals have Different CRRA Utility Functions," Discussion Papers 12/13, Department of Economics, University of York.

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