Capital Income Taxes with Heterogeneous Discount Rates

Peter Diamond and Johannes Spinnewijn

American Economic Journal: Economic Policy, 2011, vol. 3, issue 4, 52-76

Abstract: With heterogeneity in both skills and discount factors, the Atkinson- Stiglitz theorem that savings should not be taxed does not hold. In a model with heterogeneity of preferences at each earnings level, introducing a savings tax on high earners or a savings subsidy on low earners increases welfare, regardless of the correlation between ability and discount factor. Extending Emmanuel Saez (2002), a uniform savings tax increases welfare if that correlation is sufficiently high. Key for the results is that types who value future consumption less are more tempted by a lower paid job. Some optimal tax results and empirical evidence are presented. (JEL D14, H21, H24)

JEL-codes: D14 H21 H24 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/pol.3.4.52
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Citations: View citations in EconPapers (68)

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Related works:
Working Paper: Capital Income Taxes With Heterogeneous Discount Rates (2009)
Working Paper: Capital Income Taxes with Heterogeneous Discount Rates (2009)
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