Optimal life-cycle capital taxation under self-control problems

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Abstract

We study optimal taxation of savings in an economy where agents face self-control problems and the severity of these problems possibly depends on age. Focusing on quasi-hyperbolic discounting, we show that if agents' ability to self-control increases concavely with age, then savings should be subsidised and the subsidy should decrease with age. Quantitatively, we find that the optimal subsidies in our calibrated model with age-dependent self-control are much larger than those implied by models with constant self-control. Our optimal subsidies are of comparable magnitudes to those implied by the 401(k) plan, even though the latter prescribes subsidies increasing with age.

Available Versions of this Item

• Optimal life-cycle capital taxation under self-control problems. (deposited 22 Nov 2015 21:15)
  • Optimal life-cycle capital taxation under self-control problems. (deposited 09 Sep 2017 20:14) [Currently Displayed]