Optimal Life-cycle Capital Taxation under Self-Control Problems
AbstractWe study optimal taxation of savings in an economy where agents face self-control problems and are allowed to be partially naive. We assume that the severity of self-control problems changes over the life-cycle. We focus on quasihyperbolic discounting with constant elasticity of intertemporal substitution utility functions and linear Markov equilibria. We derive explicit formulas for optimal taxes that implement the efficient allocation. We show that if agents’ ability to self-control increases concavely with age, then savings should be subsidized and the subsidy should decrease with age. We also show that allowing for age-dependent self-control problems creates large effects on the level of optimal subsidies, while optimal taxes are not very sensitive to the level of sophistication. JEL classification: E21, E62, D03. Keywords: Self-control problems, Linear Markov equilibrium, Life cycle taxation of savings.
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Bibliographic InfoPaper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 467.
Date of creation: 2012
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Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-AGE-2013-01-19 (Economics of Ageing)
- NEP-ALL-2013-01-19 (All new papers)
- NEP-DGE-2013-01-19 (Dynamic General Equilibrium)
- NEP-MIC-2013-01-19 (Microeconomics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- When kids are impatient: subsidize their savings
by Economic Logician in Economic Logic on 2013-02-04 15:37:00
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