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Optimal Tax-Transfer Policies, Life-Cycle Labour Supply and Present-Biased Preferences

Lasse Gunnersen () and Bo Sandemann Rasmussen ()
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Bo Sandemann Rasmussen: Department of Economics and Business, Aarhus University, Denmark, Postal: 8210 Aarhus V, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Using a two-period model with two types of agents that are characterized by present-biased preferences second-best optimal tax-transfer policies are considered. The paternalistic optimal tax-transfer policy has two main concerns: Income redistribution from high to low ability households and correction of undersaving due to present-biasedness. Policies must comply with incentive-compatibility constraints that restricts both how much income redistribution that can take place and how much savings should be subsidized. A main result is that the degree of present-biasedness has important consequences not only for optimal subsidies to savings but also for optimal marginal income taxes.

Keywords: Optimal tax-transfer policy; paternalistic government; age-dependent taxes; labour supply; present-biasedness; redistribution (search for similar items in EconPapers)
JEL-codes: H21 H23 H24 (search for similar items in EconPapers)
Pages: 37
Date: 2012-05-24
New Economics Papers: this item is included in nep-pbe and nep-pub
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