Quasi-Hyperbolic Discounting and Mixed Taxation

Thomas Aronsson () and Tomas Sjögren ()
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Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Tomas Sjögren: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 778, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper develops a dynamic model with endogenous labor supply, savings and health capital, where the consumers differ in ability as well as suffer from a self-control problem generated by quasi-hyperbolic discounting. The purpose is to analyze how a paternalistic government, which implements a time-consistent mix of labor income taxation, capital income taxation and commodity taxation, ought to use this tax system for purposes of redistribution and correction when individual ability is private information. Among the results, we show how the (nonlinear) income taxes ought to be used as indirect instruments for influencing the commodity demand behavior at the individual level: the intuition is that linear commodity taxes are not flexible enough to achieve proper incentives for investments in health capital.

Keywords: Quasi-Hyperbolic Discounting; asymmetric information; income taxation; commodity taxation (search for similar items in EconPapers)
JEL-codes: D60 D82 H21 H23 I18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-pub
Date: 2009-08-13

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Persistent link: http://EconPapers.repec.org/RePEc:hhs:umnees:0778

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