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Quasi-Hyperbolic Discounting and Mixed Taxation

Author

Listed:
  • Aronsson, Thomas

    () (Department of Economics, Umeå University)

  • Sjögren, Tomas

    () (Department of Economics, Umeå University)

Abstract

This paper develops a dynamic model with endogenous labor supply, savings and health capital, where the consumers differ in ability as well as suffer from a self-control problem generated by quasi-hyperbolic discounting. The purpose is to analyze how a paternalistic government, which implements a time-consistent mix of labor income taxation, capital income taxation and commodity taxation, ought to use this tax system for purposes of redistribution and correction when individual ability is private information. Among the results, we show how the (nonlinear) income taxes ought to be used as indirect instruments for influencing the commodity demand behavior at the individual level: the intuition is that linear commodity taxes are not flexible enough to achieve proper incentives for investments in health capital.

Suggested Citation

  • Aronsson, Thomas & Sjögren, Tomas, 2009. "Quasi-Hyperbolic Discounting and Mixed Taxation," Umeå Economic Studies 778, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0778
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    Citations

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    Cited by:

    1. Guo, Jang-Ting & Krause, Alan, 2015. "Dynamic nonlinear income taxation with quasi-hyperbolic discounting and no commitment," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 101-119.
    2. Aronsson, Thomas & Granlund, David, 2011. "Public goods and optimal paternalism under present-biased preferences," Economics Letters, Elsevier, vol. 113(1), pages 54-57, October.
    3. Aronsson, Thomas & Granlund, David, 2010. "Present-Biased Preferences and Publicly Provided Health Care," HUI Working Papers 41, HUI Research.
    4. Carlos Bethencourt & Lars Kunze, 2017. "Temptation and the efficient taxation of education and labor," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 986-1000, November.
    5. Thomas Aronsson & David Granlund, 2014. "Present-Biased Preferences and Publicly Provided Private Goods," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(2), pages 169-199, June.

    More about this item

    Keywords

    Quasi-Hyperbolic Discounting; asymmetric information; income taxation; commodity taxation;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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