TEMPTATION-DRIVEN BEHAVIOR AND TAXATION: A QUANTITATIVE ANALYSIS IN A LIFE-CYCLE MODEL
C-Tier
Journal:Economic Inquiry
Year:
2015
Volume:
53
Issue:
3
Pages:
1470-1490
Authors (2)
Cagri S. Kumru
(Australian National University)
Athanasios C. Thanopoulos This paper examines the impact of labor and capital income taxes in a stochastic overlapping generations (OLG) economy where agents face borrowing constraints and their behavior is temptation driven. We quantitatively establish that the existence of temptation in preferences may function as an opposing mechanism to modeling choices, such as liquidity constraints, life-cycle structure, and idiosyncratic earnings risks, that are critical in delivering a positive capital income tax rate. We show that a sufficiently large measure of individuals having self-control preferences, or alternatively, a sufficiently high cost of exercising self-control, puts downward pressure on the optimal capital income tax rate</fi>. (<fi>JEL</fi> E21, E62, H55)
(not in RePEc)
Score contribution per author:
0.503=(α=2.01 / 2 authors)×0.5x C-tier
α: calibrated so average coauthorship-adjusted count equals average raw count