Voting under temptation
In 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.
|Date of creation:||Jan 2012|
|Date of revision:|
|Contact details of provider:|| Postal: 7, S. J. S. Sansanwal Marg, New Delhi - 110016|
Web page: http://www.isid.ac.in/~pu/
More information through EDIRC
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.:
- Faruk Gul & Wolfgang Pesendorfer, 2001.
"Temptation and Self-Control,"
Econometric Society, vol. 69(6), pages 1403-1435, November.
- David Laibson, 1997.
"Golden Eggs and Hyperbolic Discounting,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 112(2), pages 443-478.
- Per Krusell & Burhanettin Kuruşçu & Anthony A. Smith Jr., 2010.
"Temptation and Taxation,"
Econometric Society, vol. 78(6), pages 2063-2084, November.
- Manuel Amador & George-Marios Angeletos & Ivan Werning, 2004.
"Commitment vs. Flexibility,"
2004 Meeting Papers
87, Society for Economic Dynamics.
- E. S. Phelps & R. A. Pollak, 1968. "On Second-Best National Saving and Game-Equilibrium Growth," Review of Economic Studies, Oxford University Press, vol. 35(2), pages 185-199.
- repec:oup:restud:v:72:y:2005:i:2:p:429-448 is not listed on IDEAS
- Marco Bassetto & Jess Benhabib, 2006.
"Redistribution, Taxes, and the Median Voter,"
2006 Meeting Papers
78, Society for Economic Dynamics.
- Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
- W. Pesendorfer & F. Gul, 1999.
"Self-Control and the Theory of Consumption,"
Princeton Economic Theory Papers
99f2, Economics Department, Princeton University.
- Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski, 2007.
"Political Economy of Mechanisms,"
321307000000000886, UCLA Department of Economics.
- Kenneth L. Judd, 1982.
"Redistributive Taxation in a Simple Perfect Foresight Model,"
572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
- Wolfgang Pesendorfer, 2002.
"The Revealed Preference Theory of Changing Tastes,"
Annual Meeting Plenary
2002-3, Society for Economic Dynamics.
When requesting a correction, please mention this item's handle: RePEc:ind:isipdp:12-03. 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: (Shamprasad M. Pujar)
If references are entirely missing, you can add them using this form.