 Optimal income taxation without commitment: policy implications of durable goodsShigeo Morita ()
Economics Bulletin, 2017, vol. 37, issue 4, 2917-2934 Abstract: This paper examines the design of non-linear tax policies applied to the consumption of durable goods. These tax policies involve an issue of time inconsistency, which the government can re-optimize its tax policies in the future period based on taxpayers' information revealed in the current period. We consider situations in which the government cannot commit to a future tax policy. If a type of taxpayers is unrevealed and a durable good consumption is complementary to a non-durable good consumption, it is optimal to tax the durable goods consumption of high-income earners and subsidize that of low-income earners. Under the additional assumption that taxpayers' disutility of labor supply is iso-elastic, if a type of taxpayers is revealed, a positive marginal tax rate on high-income earners' durable goods consumption and negative marginal tax rate on low-income earners' durable goods consumption are desirable. These imply that the government should design taxes on durable goods consumption to be progressive and supplement its optimal tax policies. Keywords: Commitment; Optimal Taxation; Time consistency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-17-00175 Access Statistics for this article More articles in Economics Bulletin from AccessEcon |
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