Capital income taxes with heterogeneous discount rates
By: [by] Peter A. Diamond [and] Johannes Spinnewijn
Contributors: Spinnewijn, Johannes; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 09-22; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 09-22.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2009
Place of publication: Cambridge, MA
Language: eng
Number of pages: 31
Description: 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 sufficiently high. Some optimal tax results and empirical evidence to support the assumptions are presented. Keywords: Optimal Taxation, Capital Income, Discount Rates. JEL Classifications: H21.
Notes: "July 14, 2009."

Includes bibliographical references (leaves 30-31).

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