Advanced Search
MyIDEAS: Login to save this paper or follow this series

Optimal Taxation in Life-Cycle Economies in the Presence of Commitment and Temptation Problems

Contents:

Author Info

  • Cagri Seda Kumru
  • Saran Sarntisart

    ()

Abstract

Self-control problem is an important determinant of individuals. economic decisions. The decision maker’s future utility is affected by unwanted temptation. This implies that implications of various government policies would differ if one incorporates these behavioural aspects. Public finance instruments could, however, be used to correct anomalies created by temptation. The purpose of this paper is to examine the question of optimal taxation when individuals have self-control problems. In order to capture our agents’ temptation towards current consumption, our model make use of the preference structure pioneered by Gul and Pesendorfer and further elaborated by Krusell et al. in the context of optimal taxation. We extend by adding labor choice and besides savings tax, we also analyze capital income tax, consumption tax and labor income tax. Results show that when the analysis is restricted to logarithmic preferences separable in consumption and labor supply, the government should subsidize either capital income or investment as it maximizes both an individual’s commitment utility for consumption and labor supply at the same time. Because individuals consume and supply labor more than their commitment utility, subsidizing improves welfare as it makes temptation less attractive.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://cbe.anu.edu.au/research/papers/pdf/wp609.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify ()
Download Restriction: no

Bibliographic Info

Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2013-609.

as in new window
Length: 64 Pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:acb:cbeeco:2013-609

Contact details of provider:
Postal: Canberra, ACT 0200
Phone: +61 2 6125 3807
Fax: +61 2 6125 0744
Email:
Web page: http://rse.anu.edu.au/
More information through EDIRC

Related research

Keywords: Temptation; self-control; consumption-savings; optimal taxation;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:acb:cbeeco:2013-609. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.