 General Equilibrium Tax Policy with Hyperbolic ConsumersToke Ward Petersen No 200101, DREAM Working Paper Series from Danish Rational Economic Agents Model, DREAM Abstract: Recently David Laibson and others have argued in favor of using hyperbolic discount functions. The purpose of this paper is to investigate whether conventional wisdom, based on the standard model with exponential discounting, also holds in the case where consumers have hyperbolic discount functions. In other words do hyperbolic preferences matter for practical policy evaluation? Within the framework of a suitably modified standard General Equilibrium model à la Auerbach and Kotlikoff, this is done by simulations of both fundamental changes in the tax base, as well as more marginal experiments comparing the excess burden of taxation. Based on the simulations it turns out that the answer to the question is a maybe: If preferences are sufficiently hyperbolic then policy conclusions change. Unfortunately this degree of hyperbolicness in the discounting function is at the level that is considered realistic by empirical studies. Keywords: hyperbolic discounting; tax reform; marginal excess burden (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:dra:wpaper:200101 Access Statistics for this paper More papers in DREAM Working Paper Series from Danish Rational Economic Agents Model, DREAM Amaliegade 44, DK - 1256 Copenhagen K. Contact information at EDIRC. |
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