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| Shigeo Morita |
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| ''Optimal income taxation without commitment: policy implications of durable goods'' |
| ( 2017, Vol. 37 No.4 ) |
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| This paper examines the design of non-linear tax policies applied to the consumption of durable goods.
These tax policies involve an issue of time inconsistency, which the government can re-optimize its tax policies in the future period based on taxpayers' information revealed in the current period.
We consider situations in which the government cannot commit to a future tax policy.
If a type of taxpayers is unrevealed and a durable good consumption is complementary to a non-durable good consumption, it is optimal to tax the durable goods consumption of high-income earners and subsidize that of low-income earners.
Under the additional assumption that taxpayers' disutility of labor supply is iso-elastic, if a type of taxpayers is revealed, a positive marginal tax rate on high-income earners' durable goods consumption and negative marginal tax rate on low-income earners' durable goods consumption are desirable.
These imply that the government should design taxes on durable goods consumption to be progressive and supplement its optimal tax policies. |
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| Keywords: Commitment, Optimal Taxation, Time consistency |
JEL: H2 - Taxation, Subsidies, and Revenue: General
H3 - Fiscal Policies and Behavior of Economic Agents: General |
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| Manuscript Received : Mar 03 2017 | | Manuscript Accepted : Dec 28 2017 |
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