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Taxation and Heterogeneous Preferences

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Author Info
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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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
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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
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Related research
Keywords: Optimum taxation; Heterogeneous preferences; Asymmetric information;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dahlberg, Susanne & Nahum, Ruth-Aïda, 2003. "Cohort Effects on Earnings Profiles: Evidence from Sweden," Arbetsrapport 2003:3, Institute for Futures Studies. [Downloadable!]
    Other versions:
  2. Bergman, Mats, 2003. "When Should an Incumbent Be Obliged to Share its Infrastructure with an Entrant Under the General Competition Rules?," Working Paper Series 2003:25, Uppsala University, Department of Economics. [Downloadable!]
  3. Holmlund, Bertil, 2003. "The Rise and Fall of Swedish Unemployment," Working Paper Series 2003:13, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  4. Blomquist, Sören & Micheletto, Luca, 2003. "Age Related Optimal Income Taxation," Working Paper Series 2003:7, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  5. Häkkinen, Iida, 2004. "Working while enrolled in a university: Does it pay?," Working Paper Series 2004:1, Uppsala University, Department of Economics. [Downloadable!]
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  6. Fredriksson, Peter & Holmlund, Bertil, 2003. "Improving Incentives in Unemployment Insurance: A Review of Recent Research," Working Paper Series 2003:10, Uppsala University, Department of Economics. [Downloadable!]
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  7. Niclas Berggren & Henrik Jordahl, 2005. "Does free trade really reduce growth? Further testing using the economic freedom index," Public Choice, Springer, vol. 122(1), pages 99-114, January. [Downloadable!] (restricted)
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  8. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75. [Downloadable!] (restricted)
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  10. Häkkinen, Iida & Uusitalo, Roope, 2003. "The Effect of a Student Aid Reform on Graduation: A Duration Analysis," Working Paper Series 2003:8, Uppsala University, Department of Economics. [Downloadable!]
  11. Klevmarken, N. Anders, 2003. "On Household Wealth Trends in Sweden over the 1990s," Working Paper Series 2003:24, Uppsala University, Department of Economics. [Downloadable!]
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  12. Bertil Holmlund, 2004. "Sickness Absence and Search Unemployment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  13. Hedström, Peter & Kolm, Ann-Sofie & Åberg, Yvonne, 2003. "Social interactions and unemployment," Working Paper Series 2003:15, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
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  14. Lindhe, Tobias & Södersten, Jan & Öberg, Ann, 2003. "Economic Effects of Taxing Different Organizational Forms under a Dual Income Tax," Working Paper Series 2003:19, Uppsala University, Department of Economics. [Downloadable!]
  15. Lindvall, Lars, 2003. "Does Public Spending on Youths Affect Crime Rates?," Working Paper Series 2004:3, Uppsala University, Department of Economics. [Downloadable!]
  16. Aronsson, Thomas & Blomquist, Sören, 2004. "Redistribution and Provision of Public Goods in an Economic Federation," Working Paper Series 2004:4, Uppsala University, Department of Economics. [Downloadable!]
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  17. Gottfries, Nils, 2003. "Booms and Busts in EMU," Working Paper Series 2003:29, Uppsala University, Department of Economics. [Downloadable!]
  18. Eklöf, Matias & Hallberg, Daniel, 2004. "Private Alternatives and Early Retirement Programs," Working Paper Series 2004:5, Uppsala University, Department of Economics. [Downloadable!]
  19. Dahlberg, Matz & Eklöf, Matias, 2003. "Relaxing the IIA Assumption in Locational Choice Models: A Comparison Between Conditional Logit, Mixed Logit, and Multinomial Probit Models," Working Paper Series 2003:9, Uppsala University, Department of Economics. [Downloadable!]
  20. Pettersson-Lidbom, Per & Dahlberg, Matz, 2003. "An Empirical Approach for Evaluating Soft Budget Constraints," Working Paper Series 2003:28, Uppsala University, Department of Economics. [Downloadable!]
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  22. Hallberg, Daniel, 2003. "A Description of Routes out of the Labor Force for Workers in Sweden," Working Paper Series 2003:23, Uppsala University, Department of Economics. [Downloadable!]
  23. Hanna Ågren & Matz Dahlberg & Eva Mörk, 2007. "Do politicians’ preferences correspond to those of the voters? An investigation of political representation," Public Choice, Springer, vol. 130(1), pages 137-162, January. [Downloadable!] (restricted)
    Other versions:
  24. Eklöf, Matias, 2003. "Assessing Social Costs of Inefficient Procurement Design," Working Paper Series 2003:12, Uppsala University, Department of Economics. [Downloadable!]
  25. Lundin, Magnus & Gottfries, Nils & Lindström, Tomas, 2004. "Price and Investment Dynamics: An Empirical Analysis of Plant Level Data," Working Paper Series 2004:7, Uppsala University, Department of Economics. [Downloadable!]
  26. Savvidou, Eleni, 2003. "The Relationship Between Skilled Labor and Technical Change," Working Paper Series 2003:27, Uppsala University, Department of Economics. [Downloadable!]
  27. Edmark, Karin, 2003. "The Effects of Unemployment on Property Crime: Evidence from a Period of Unusually Large Swings in the Business Cycle," Working Paper Series 2003:14, Uppsala University, Department of Economics. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jukka Pirttilä & Sanna Tenhunen, 2005. "Pawns and Queens Revisited: Public Provision of Private Goods when Individuals make Mistakes," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Peter A. Diamond & Johannes Spinnewijn, 2009. "Capital Income Taxes with Heterogeneous Discount Rates," NBER Working Papers 15115, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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