Capital Income Taxes with Heterogeneous Discount Rates
- (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
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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