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Shigeo Morita
 
''Optimal income taxation without commitment: policy implications of durable goods''
( 2017, Vol. 37 No.4 )
 
 
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.
 
 
Keywords: Commitment, Optimal Taxation, Time consistency
JEL: H2 - Taxation, Subsidies, and Revenue: General
H3 - Fiscal Policies and Behavior of Economic Agents: General
 
Manuscript Received : Mar 03 2017 Manuscript Accepted : Dec 28 2017

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