Capital Income Taxes with Heterogeneous Discount Rates
American Economic Journal: Economic Policy
vol. 3,
no. 4, November 2011
(pp. 52-76)
Abstract
With heterogeneity in both skills and discount factors, the Atkinson- Stiglitz theorem that savings should not be taxed does not hold. In a model with heterogeneity of preferences at each earnings level, introducing a savings tax on high earners or a savings subsidy on low earners increases welfare, regardless of the correlation between ability and discount factor. Extending Emmanuel Saez (2002), a uniform savings tax increases welfare if that correlation is sufficiently high. Key for the results is that types who value future consumption less are more tempted by a lower paid job. Some optimal tax results and empirical evidence are presented. (JEL D14, H21, H24)Citation
Diamond, Peter, and Johannes Spinnewijn. 2011. "Capital Income Taxes with Heterogeneous Discount Rates." American Economic Journal: Economic Policy, 3 (4): 52-76. DOI: 10.1257/pol.3.4.52Additional Materials
JEL Classification
- D14 Personal Finance
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
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