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Title:Taxation of Annual Income as a Commitment Device PDF Logo
Authors:Gaube, Thomas
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Dynamic Aspects in Optimal Taxation F17-V3
Abstract:I study a two-period model of nonlinear, information constrained income taxation. It is shown that time-consistent taxation of annual income welfare-dominates time-consistent taxation of lifetime income if preferences are such that stationary allocations are efficient. If uncertainty is taken into account and if state-contingent fiscal policy is not feasible, time-consistent taxation of annual income can also welfare-dominate taxation of lifetime income under commitment. These findings may help in explaining why governments usually tax annual rather than lifetime earnings.
Subjects:nonlinear income taxation
tax base
time-consistency
commitment
JEL:H21
H24
H31
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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