Diamond-Mirrlees meets Sims: Optimal Taxation with Rational Inattention

George-Marios Angeletos and Matias Bayas-Erazo

No 35741, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study optimal commodity taxation when consumers are rationally inattentive and the planner internalizes their attention costs. In our setting, consumers may underreact to taxes, may allocate attention unevenly across goods, and may display sparse behavior or mental accounting. Our main result is that this need not change tax design: in a benchmark, optimal taxes satisfy the same sufficient-statistics formulas as in classical public finance, regardless of the extent and endogeneity of inattention. Away from this benchmark, we offer a dual rationale for state-dependent taxes and a new lens on tax salience; but we still find no room for the adjustments emphasized in recent work on behavioral public finance.

JEL-codes: D03 D90 E03 H21 H23 (search for similar items in EconPapers)
Date: 2026-09
Note: EFG PE
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