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Dynamic corrective taxes with time-varying salience

Ben Gilbert () and Joshua Graff Zivin

No 2018-05, Working Papers from Colorado School of Mines, Division of Economics and Business

Abstract: The intermittency of payment for many goods creates a disconnect between paying and consuming such that the marginal price is not always salient when consumption decisions are made. This paper derives optimal dynamic corrective taxes when there are externalities as well as internalities from inattention and persistence in consumption across periods. Our optimal taxes address dynamic inefficiencies that are not captured in static models of inattention. We also characterize a second-best constant tax and the excess burden associated with time-invariant tax rates. We then calibrate the model to U.S. residential electricity consumption.

Keywords: Salience; Inattention; Optimal Taxes; Energy Demand; Consumption Persistence (search for similar items in EconPapers)
JEL-codes: D03 D11 D62 D91 H21 H23 L97 Q40 Q41 Q50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-pub, nep-reg and nep-res
Date: 2018-08
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http://econbus-papers.mines.edu/working-papers/wp201805.pdf First version, 2018 (application/pdf)

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Working Paper: Dynamic Corrective Taxes with Time-Varying Salience (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mns:wpaper:wp201805

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