Capital Income Taxes with Heterogeneous Discount Rates / Peter A. Diamond, Johannes Spinnewijn.

Format:

Book

Author/Creator:

Diamond, Peter A.

Contributor:

National Bureau of Economic Research.

Spinnewijn, Johannes.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15115.

NBER working paper series no. w15115

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

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.

Notes:

Print version record

June 2009.