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Temptation in consumption and optimal taxation

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  • Arvaniti, Maria
  • Sjögren, Tomas

Abstract

This article aims to integrate temptation preferences into the theory of optimal taxation with heterogenous agents and asymmetric information. Consumers are tempted to over-consume a commodity which may lead to an over-supply of labor. Resisting this temptation implies a utility cost and any policy that reduces this cost is welfare improving. We uncover novel channels for government intervention and the interaction between the welfare improving and redistributive roles of public policy. We also identify a commitment mechanism that works through the endogenous labor choice and affects the design and effectiveness of the optimal tax policy.

Suggested Citation

  • Arvaniti, Maria & Sjögren, Tomas, 2023. "Temptation in consumption and optimal taxation," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 687-707.
    • Handle: RePEc:eee:jeborg:v:205:y:2023:i:c:p:687-707
    DOI: 10.1016/j.jebo.2022.10.030
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    Cited by:

    1. Marian Socoliuc & Gabriela Brînzaru, 2023. "The Role Of Tax Optimization In The Current Economic Context - A Bibliometric And Meta-Analysis Approach," European Journal of Accounting, Finance & Business, "Stefan cel Mare" University of Suceava, Romania - Faculty of Economics and Public Administration, West University of Timisoara, Romania - Faculty of Economics and Business Administration, vol. 11(2), pages 138-150, June.

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    More about this item

    Keywords

    Temptation; Self-control; Optimal taxation; Redistribution; Commodity taxation; Income taxation;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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