Optimal Nonlinear Savings Taxation

Charles Brendon

No 17146, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper analyses the design of optimal nonlinear savings taxation, in a multi-period consumption-savings economy where consumers face persistent, uninsurable shocks to the marginal value that they place on consuming. Its main contributions are: (a) to show that shocks of this kind generically justify positive marginal savings taxes, and (b) to characterise these taxes by reference to a limited number of sufficient statistics. The method for obtaining this characterisation is generalisable, and provides a roadmap for reconnecting `Mirrleesian' and `sufficient statistics' approaches to dynamic taxation. Intuitively, dynamic asymmetric information problems imply significant restrictions on intertemporal consumption elasticities. These restrictions keep sufficient statistics representations manageable, despite the multi-dimensional choice setting.

Keywords: Nonlinear taxation; Sufficient statistics; Mirrleesian taxation; New dynamic public finance (search for similar items in EconPapers)
Date: 2022-03
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