Capital Income Taxes with Heterogeneous Discount Rates

Peter Diamond and Johannes Spinnewijn

No 15115, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: With heterogeneity in both skills and discount factors, the Atkinson-Stiglitz theorem that savings should not be taxed does not hold. We consider a model with heterogeneity of preferences at each earnings level. With some assumptions on the equilibrium, a small savings tax on high earners and a small savings subsidy on low earners both increase welfare, regardless of the correlation between ability and discount factor. Key is that types who value future consumption less are more tempted to switch to a lower paid job. Extending Saez (2002), a uniform savings tax increases welfare if the correlation of skill with discount factor is su¢ ciently high. Some optimal tax results and empirical evidence to support the assumptions are presented.

JEL-codes: H21 (search for similar items in EconPapers)
Date: 2009-06
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published as Peter Diamond & Johannes Spinnewijn, 2011. "Capital Income Taxes with Heterogeneous Discount Rates," American Economic Journal: Economic Policy, American Economic Association, vol. 3(4), pages 52-76, November.

Downloads: (external link)
http://www.nber.org/papers/w15115.pdf (application/pdf)

Related works:
Journal Article: Capital Income Taxes with Heterogeneous Discount Rates (2011)
Working Paper: Capital Income Taxes With Heterogeneous Discount Rates (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:15115

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15115

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().