EconStor >
Freie Universität Berlin >
Fachbereich Wirtschaftswissenschaft, Freie Universität Berlin >
Diskussionsbeiträge, FB Wirtschaftswissenschaft, FU Berlin >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/59885
  
Title:Adaptation, Anticipation-bias and optimal income taxation PDF Logo
Authors:Aronsson, Thomas
Schöb, Ronnie
Issue Date:2012
Series/Report no.:School of Business & Economics, Discussion Paper: Economics 2012/13
Abstract:Adaptation is omnipresent but people systematically fail to correctly anticipate the degree to which they adapt. This leads individuals to make inefficient intertemporal decisions. This paper concerns optimal income taxation to correct for such anticipation-biases in a framework where consumers adapt to earlier consumption levels through a habit-formation process. The analysis is based on a general equilibrium OLG model with endogenous labor supply and savings where each consumer lives for three periods. Our results show how a paternalistic government may correct for the effects of anticipation-bias through a combination of time-variant marginal labor income taxes and savings subsidies. Furthermore, the optimal policy mix remains the same, irrespective of whether consumers commit to their original life-time plan for work hours and savings decided upon in the first period of life or re-optimize later on when realizing the failure to adapt.
Subjects:optimal taxation
adaptation
habit-formation
anticipation-bias
paternalism
JEL:D03
D61
D91
H21
Document Type:Working Paper
Appears in Collections:Diskussionsbeiträge, FB Wirtschaftswissenschaft, FU Berlin

Files in This Item:
File Description SizeFormat
719254590.pdf265.09 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/59885

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.