Optimal Nonlinear Taxation of Income and Savings Without Commitment

Craig Brett and John Weymark

No 16-00010, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: When a government is unable to commit to its future tax policies, information about taxpayers' characteristics revealed by their behavior may be used to extract more taxes from them in the future. We examine the implications of this ratchet effect for the design of redistributive income and savings tax policies in a two-period model with two types of individuals who only differ in their skill levels. When commitment is not possible, it may be optimal to separate, pool, or partially pool different types in period one. The nature of the distortions to labor supplies and savings are investigated for each of these three regimes. Novel rationales for savings distortions are identified.

Keywords: asymmetric information; commitment; optimal income taxation; ratchet effect; savings taxation (search for similar items in EconPapers)
JEL-codes: D8 H2 (search for similar items in EconPapers)
Date: 2016-03-13
New Economics Papers: this item is included in nep-pbe and nep-pub
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Optimal nonlinear taxation of income and savings without commitment (2019)
Working Paper: Optimal Nonlinear Taxation of Income and Savings without Commitment (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:vuecon-sub-16-00007

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