The Credibility of Commitment and Optimal Nonlinear Savings Taxation

Jang-Ting Guo and Alan Krause

No 201708, Working Papers from University of California at Riverside, Department of Economics

Abstract: We compare optimal nonlinear savings taxation under different assumptions with regard to the government's ability to commit to its future tax policy. In particular, we incorporate the possibility that individuals may differ in their beliefs regarding the probability of commitment. When these beliefs are homogeneous, we find that optimal marginal savings tax rates always fall between those under the polar cases of full-commitment (zero marginal savings taxation) and no-commitment (progressive marginal savings taxation). However, this result no longer holds when beliefs are postulated to be heterogeneous. The effects of beliefs changing in response to past commitment or no-commitment decisions by the government are also quantitatively explored.

Keywords: Savings Taxation; Commitment; Multi-Dimensional Screening. (search for similar items in EconPapers)
JEL-codes: E60 H21 H24 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pub
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https://economics.ucr.edu/repec/ucr/wpaper/201708.pdf First version, 2017 (application/pdf)

Related works:
Journal Article: The credibility of commitment and optimal nonlinear savings taxation (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:201708

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