Endogenous discounting, wariness, and efficient capital taxation

Aloisio Araujo, Juan Pablo Gama, Rodrigo Novinski and Mario R. Pascoa

Journal of Economic Theory, 2019, vol. 183, issue C, 520-545

Abstract: When the discount factors that infinite lived consumers use at each date are not predetermined but are instead chosen within some set, depending on what the consumption plan is, impatience might not hold. More precisely, if the utility is the infimum of discounted utilities over that set of discount factor sequences, then preferences may be just upper semi-impatient. Such lack of lower semi-impatience, which we refer to as wariness, consists in neglecting distant gains but not distant losses. Examples are the precautionary case (a concern with the worst lifetime outcome) and the habit persistence case (a concern with a fall in living standards). The implementation of efficient allocations by trading assets sequentially requires taxes that avoid excessive savings by raising the opportunity of cost of saving up to the point of matching the marginal benefit of dishoarding at distant dates. Taxes on equilibrium plans are zero in many contexts.

Keywords: General equilibrium; Monetary equilibrium; Efficient taxation; Endogenous discounting; Transversality condition; Pure charges (search for similar items in EconPapers)
JEL-codes: D53 E40 E41 G10 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:183:y:2019:i:c:p:520-545

DOI: 10.1016/j.jet.2019.07.004

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