Preference heterogeneity and optimal capital taxation

Mikhail Golosov, Matthew Weinzierl () and Aleh Tsyvinsky
Authors registered in the RePEc Author Service: Aleh Tsyvinski

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We analytically and quantitatively examine a prominent justification for capital income taxation: goods preferred by those with high ability ought to be taxed. We study an environment where commodity taxes are allowed to be nonlinear functions of income and consumption and find that, when ability is positively related to a preference for a good, optimal marginal commodity taxes on this good may be regressive: i.e., declining with income. We derive an analytical expression for optimal commodity taxation, allowing us to study the forces for and against regressivity. We then parameterize the model to evidence on the relationship between skills and preferences and examine the quantitative case for taxes on future consumption (saving). The relationship between skill and time preference delivers quantitatively small, generally regressive capital income taxes and would justify only a fraction of the prevailing level of capital income taxation.

JEL-codes: J1 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://eprints.lse.ac.uk/58180/ Open access version. (application/pdf)

Related works:
Working Paper: Preference Heterogeneity and Optimal Capital Taxation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:58180

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