Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89636
Authors: 
Koehne, Sebastian
Kuhn, Moritz
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4581
Abstract: 
We study implications of habit formation for optimal taxation. First, we show that taxation problems with habit formation can be analyzed using dynamic programming techniques. Second, we derive optimal labor and savings wedges for habit formation preferences. We show that habit formation counteracts the conventional Mirrleesian distortions and calls for subsidies to labor supply and savings. We demonstrate that the theoretical results are quantitatively important: in a stylized life-cycle model, average labor and savings wedges fall by more than one third compared to time-separable references. Third, we exploit the analogy between habit formation and durable consumption to study the taxation of durable and nondurable commodities.
Subjects: 
optimal taxation
habit formation
pre-committed goods
durable goods
JEL: 
D82
E21
H21
Document Type: 
Working Paper

Files in This Item:
File
Size





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