Optimal Household Behaviour under Taxation - a Two-Stage Dynamic Programming Approach

Victor Stern

No 272266, Econometric Institute Archives from Erasmus University Rotterdam

Abstract: This paper presents a method of solving a practical optimization problem which arose in the context of private households' reactions to income tax levied from couples. Since the problem of constrained maximization of the household's life-time utility function in n prospective periods is complicated and sizeable, a two-stage dynamic programming approach is proposed. Splitting the problem into two-sub problems: finding the optimum policy and approximation in the policy space, is based on the dynamic nature of problems of this type, which can be seen as a multi-period decision process. Some provisional results obtained by experimental application appear to be sufficiently promising to justify elaboration.

Keywords: Consumer/Household Economics; Financial Economics; Institutional and Behavioral Economics (search for similar items in EconPapers)
Pages: 23
Date: 1980
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eureia:272266

DOI: 10.22004/ag.econ.272266

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