Voting under temptation
AbstractIn the presence of temptation and self-control preferences as in Gul and Pesendorfer, the optimal policy is to subsidize savings when consumers are tempted by "excessive" impatience (Krusell, Kuruscu and Smith, 2010). However, in the homogeneous agents model, taxation loses an important property in that it fails to reduce the inequality through redistribution. Thus the phenomenon that welfare improves on subsidizing savings may vanish when the agents differ in their abilities to earn income. They may well choose a positive tax if they are from low ability group where the redistribution effect of tax dominates the temptation effect. In a political economy, a situation may easily arise where a negative tax will never be implemented. When agents are homogeneous, as temptation grows, optimal subsidy on saving increases. The corresponding result in the heterogeneous agents case is that as temptation grows, the political support for the subsidy increases.
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Bibliographic InfoPaper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 12-03.
Length: 24 pages
Date of creation: Jan 2012
Date of revision:
Temptation; self-control; optimal tax; voting;
Other versions of this item:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-CDM-2012-03-28 (Collective Decision-Making)
- NEP-MIC-2012-03-28 (Microeconomics)
- NEP-POL-2012-03-28 (Positive Political Economics)
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.:
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