TEMPTATION-DRIVEN BEHAVIOR AND TAXATION: A QUANTITATIVE ANALYSIS IN A LIFE-CYCLE MODEL

Cagri Kumru and Athanasios C. Thanopoulos This paper examines the impact of labor and capital income taxes in a stochastic overlapping generations (OLG) economy where agents face borrowing constraints and their behavior is temptation driven. We quantitatively establish that the existence of temptation in preferences may function as an opposing mechanism to modeling choices, such as liquidity constraints, life-cycle structure, and idiosyncratic earnings risks, that are critical in delivering a positive capital income tax rate. We show that a sufficiently large measure of individuals having self-control preferences, or alternatively, a sufficiently high cost of exercising self-control, puts downward pressure on the optimal capital income tax rate . ( JEL E21, E62, H55)

Economic Inquiry, 2015, vol. 53, issue 3, 1470-1490

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1111/ecin.2015.53.issue-3 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ecinqu:v:53:y:2015:i:3:p:1470-1490

Ordering information: This journal article can be ordered from
https://ordering.onl ... s.aspx?ref=1465-7295

Access Statistics for this article

Economic Inquiry is currently edited by Tim Salmon

More articles in Economic Inquiry from Western Economic Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().