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Taxation and Heterogeneous Preferences

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  • Blomquist, Sören

    ()
    (Department of Economics)

  • Christiansen, Vidar

    ()
    (Department of Economics)

Abstract

Non-linear income taxes and linear commodity taxes are analysed when people differ with respect to ability, high-skilled agents have heterogeneous preferences, and neither individual abilities nor preferences are observable. The paper highlights how informational constraints may motivate differential treatment of people with different preferences for leisure even if unequal treatment is not desirable per se. Which preference type that will be better or worse off, is shown to depend on the self-selection constraints associated with the information asymmetry. 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-skilled and those who have strong preference for leisure. As is shown, there may still be an impact 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, in terms of targeting groups that the income tax is incapable of discriminating between.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2004:9.

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Length: 29 pages
Date of creation: 07 Jul 2004
Date of revision:
Handle: RePEc:hhs:uunewp:2004_009

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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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. Peter A. Diamond & Johannes Spinnewijn, 2009. "Capital Income Taxes with Heterogeneous Discount Rates," NBER Working Papers 15115, National Bureau of Economic Research, Inc.
  2. Julien Daubanes & Pierre Lasserre, 2011. "Optimum Commodity Taxation with a Non-Renewable Resource," CIRANO Working Papers 2011s-05, CIRANO.
  3. Marc Fleurbaey, 2005. "Is Commodity Taxation Unfair?," IDEP Working Papers 0502, Institut d'economie publique (IDEP), Marseille, France, revised Jan 2005.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. Hodler, Roland, 2008. "Leisure and redistribution," European Journal of Political Economy, Elsevier, vol. 24(2), pages 354-363, June.
  9. Alan Krause, 2012. "Optimal Savings Taxation when Individuals have Different CRRA Utility Functions," Discussion Papers 12/13, Department of Economics, University of York.
  10. Matteo Bassi, 2012. "Optimal Libertarian Sin Taxes," CSEF Working Papers 317, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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