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Optimal Nonlinear Savings Taxation

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  • Brendon, C.

Abstract

This paper analyses the design of optimal nonlinear savings taxation, in a multi-period consumption savings economy where consumers face persistent, uninsurable shocks to the marginal value that they place on consuming. Its main contributions are: (a) to show that shocks of this kind generically justify positive marginal savings taxes, and (b) to characterise these taxes by reference to a limited number of sufficient statistics. The method for obtaining this characterisation is generalisable, and provides a roadmap for reconnecting ‘Mirrleesian’ and ‘sufficient statistics’ approaches to dynamic taxation. Intuitively, dynamic asymmetric information problems imply significant restrictions on intertemporal consumption elasticities. These restrictions keep sufficient statistics representations manageable, despite the multi-dimensional choice setting.

Suggested Citation

  • Brendon, C., 2022. "Optimal Nonlinear Savings Taxation," Cambridge Working Papers in Economics 2221, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2221
    Note: cfb46
    as

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    File URL: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2221.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Mirrleesian Taxation; New Dynamic Public Finance; Nonlinear Taxation; Sufficient Statistics;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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