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De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution

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  • Benjamin B. Lockwood
  • Matthew C. Weinzierl

Abstract

The prominent but unproven intuition that preference heterogeneity reduces re-distribution in a standard optimal tax model is shown to hold under the plausible condition that the distribution of preferences for consumption relative to leisure rises, in terms of first-order stochastic dominance, with income. Given mainstream functional form assumptions on utility and the distributions of ability and preferences, a simple statistic for the effect of preference heterogeneity on marginal tax rates is derived. Numerical simulations and suggestive empirical evidence demonstrate the link between this potentially measurable statistic and the quantitative implications of preference heterogeneity for policy.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17784.

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Date of creation: Jan 2012
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Handle: RePEc:nbr:nberwo:17784

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References

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  1. Marc Fleurbaey & François Maniquet, 2006. "Compensation and responsibility," Working Papers halshs-00121367, HAL.
  2. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," NBER Working Papers 15071, National Bureau of Economic Research, Inc.
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  8. 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).
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  15. repec:nbr:nberwo:12533 is not listed on IDEAS
  16. Emmanuel Saez, 2000. "The Desirability of Commodity Taxation under Non-Linear Income Taxation and Heterogeneous Tastes," NBER Working Papers 8029, National Bureau of Economic Research, Inc.
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Cited by:
  1. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
  2. Matthew C. Weinzierl, 2014. "Revisiting the Classical View of Benefit-Based Taxation," Harvard Business School Working Papers 14-101, Harvard Business School.
  3. Emmanuel Saez & Stefanie Stantcheva, 2013. "Generalized Social Marginal Welfare Weights for Optimal Tax Theory," NBER Working Papers 18835, National Bureau of Economic Research, Inc.
  4. Ooghe, Erwin & Peichl, Andreas, 2014. "Fair and efficent taxation under partial control," ZEW Discussion Papers 14-002, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Matthew C. Weinzierl, 2012. "Why do we Redistribute so Much but Tag so Little? The principle of equal sacrifice and optimal taxation," NBER Working Papers 18045, National Bureau of Economic Research, Inc.
  6. Haan, Peter & Decoster, Andre, 2013. "Empirical welfare analysis with preference heterogeneity," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79815, Verein für Socialpolitik / German Economic Association.

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