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American Economic Journal: Economic Policy: Vol. 3 No. 4 (November 2011)
AEJ: Policy Volume. 3, Issue 4 | 
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AEJ: Policy Forthcoming Articles
Capital Income Taxes with Heterogeneous Discount Rates
Article 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.3.4.52
DOI: 10.1257/pol.3.4.52
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)
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Authors
Diamond, Peter (MIT)
Spinnewijn, Johannes (London School of Economics and Political Science)
Spinnewijn, Johannes (London School of Economics and Political Science)
JEL Classifications
D14: Personal Finance
H21: Taxation and Subsidies: Efficiency; Optimal Taxation
H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
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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