Temptation in consumption and optimal taxation

Maria Arvaniti () and Tomas Sjögren

Journal of Economic Behavior & Organization, 2023, vol. 205, issue C, 687-707

Abstract: This article aims to integrate temptation preferences into the theory of optimal taxation with heterogenous agents and asymmetric information. Consumers are tempted to over-consume a commodity which may lead to an over-supply of labor. Resisting this temptation implies a utility cost and any policy that reduces this cost is welfare improving. We uncover novel channels for government intervention and the interaction between the welfare improving and redistributive roles of public policy. We also identify a commitment mechanism that works through the endogenous labor choice and affects the design and effectiveness of the optimal tax policy.

Keywords: Temptation; Self-control; Optimal taxation; Redistribution; Commodity taxation; Income taxation (search for similar items in EconPapers)
JEL-codes: D03 H21 H24 H31 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:205:y:2023:i:c:p:687-707

DOI: 10.1016/j.jebo.2022.10.030

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