Advanced Search
MyIDEAS: Login to save this paper or follow this series

Capital Income Taxes with Heterogeneous Discount Rates

Contents:

Author Info

  • Peter A. Diamond
  • Johannes Spinnewijn

Abstract

With heterogeneity in both skills and discount factors, the Atkinson-Stiglitz theorem that savings should not be taxed does not hold. We consider a model with heterogeneity of preferences at each earnings level. With some assumptions on the equilibrium, a small savings tax on high earners and a small savings subsidy on low earners both increase welfare, regardless of the correlation between ability and discount factor. Key is that types who value future consumption less are more tempted to switch to a lower paid job. Extending Saez (2002), a uniform savings tax increases welfare if the correlation of skill with discount factor is su¢ ciently high. Some optimal tax results and empirical evidence to support the assumptions are presented.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w15115.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15115.

as in new window
Length:
Date of creation: Jun 2009
Date of revision:
Publication status: published as Peter Diamond & Johannes Spinnewijn, 2011. "Capital Income Taxes with Heterogeneous Discount Rates," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 52-76, November.
Handle: RePEc:nbr:nberwo:15115

Note: PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Roger H. Gordon, 2003. "Taxation of Interest Income," NBER Working Papers 9503, National Bureau of Economic Research, Inc.
  2. Roger H. Gordon & Wojciech Kopczuk, 2014. "The Choice of the Personal Income Tax Base," NBER Working Papers 20227, National Bureau of Economic Research, Inc.
  3. BOADWAY, R. & MARCHAND, M. & PESTIEAU, P. & del MAR RACIONERO, M., 2001. "Optimal redistribution with heterogeneous preferences for leisure," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the rich save more?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-52, Board of Governors of the Federal Reserve System (U.S.).
  5. Louis Kaplow, 2008. "Optimal Policy with Heterogeneous Preferences," NBER Working Papers 14170, National Bureau of Economic Research, Inc.
  6. Narayana R. Kocherlakota, 2005. "Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation," Econometrica, Econometric Society, Econometric Society, vol. 73(5), pages 1587-1621, 09.
  7. Saez, Emmanuel, 2002. "The desirability of commodity taxation under non-linear income taxation and heterogeneous tastes," Journal of Public Economics, Elsevier, Elsevier, vol. 83(2), pages 217-230, February.
  8. Chabris, Christopher F. & Laibson, David I. & Morris, Carrie L. & Schuldt, Jonathon P. & Taubinsky, Dmitry, 2008. "Individual Laboratory-Measured Discount Rates Predict Field Behavior," Scholarly Articles 11130522, Harvard University Department of Economics.
  9. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 6(1-2), pages 55-75.
  10. Katherine Cuff, 1998. "Optimality of Workfare with Heterogeneous Preferences," Working Papers, Queen's University, Department of Economics 968, Queen's University, Department of Economics.
  11. Peter A. Diamond, 2005. "Taxation, Incomplete Markets, and Social Security," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262541823, December.
  12. Ritva Tarkiainen & Matti Tuomala, 2007. "On optimal income taxation with heterogeneous work preferences," International Journal of Economic Theory, The International Society for Economic Theory, The International Society for Economic Theory, vol. 3(1), pages 35-46.
  13. Diamond, Peter, 2006. "Optimal tax treatment of private contributions for public goods with and without warm glow preferences," Journal of Public Economics, Elsevier, Elsevier, vol. 90(4-5), pages 897-919, May.
  14. Blomquist, Sören & Christiansen, Vidar, 2004. "Taxation and Heterogeneous Preferences," Working Paper Series, Uppsala University, Department of Economics 2004:9, Uppsala University, Department of Economics.
  15. Kaplow Louis, 2008. "Optimal Policy with Heterogeneous Preferences," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 8(1), pages 1-30, September.
  16. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Sule Alan & Kadir Atalay & Thomas F. Crossley, 2006. "Do the Rich Save More in Canada?," Social and Economic Dimensions of an Aging Population Research Papers, McMaster University 153, McMaster University.
  2. Matthew C. Weinzierl, 2012. "The Promise of Positive Optimal Taxation," NBER Working Papers 18599, National Bureau of Economic Research, Inc.
  3. Jang-Ting Guo & Alan Krause, . "Dynamic Nonlinear Income Taxation with Quasi-Hyperbolic Discounting and No Commitment," Discussion Papers, Department of Economics, University of York 11/16, Department of Economics, University of York.
  4. Kuhle, Wolfgang, 2012. "Dynamic efficiency and the two-part golden rule with heterogeneous agents," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(4), pages 992-1006.
  5. Bas Jacobs, 2013. "From Optimal Tax Theory to Applied Tax Policy," CESifo Working Paper Series 4151, CESifo Group Munich.
  6. Peter Diamond, 2009. "Taxes and Pensions," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 76(1), pages 2-15, July.
  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, Springer, vol. 20(3), pages 485-512, June.
  8. Benjamin B. Lockwood & Matthew C. Weinzierl, 2012. "De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution," NBER Working Papers 17784, National Bureau of Economic Research, Inc.

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. Capital Income Taxes with Heterogeneous Discount Rates (AEJ:EP 2011) in ReplicationWiki

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15115. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.