Optimal life-cycle capital taxation under self-control problems

Pavoni, Nicola and Yazıcı, Hakkı (2017) Optimal life-cycle capital taxation under self-control problems. Economic Journal, 127 (602). pp. 1188-1216. ISSN 0013-0133 (Print) 1468-0297 (Online)

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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.
Item Type: Article
Subjects: H Social Sciences > HJ Public Finance
Divisions: Faculty of Arts and Social Sciences > Academic programs > Economics
Faculty of Arts and Social Sciences
Depositing User: Hakkı Yazıcı
Date Deposited: 09 Sep 2017 20:14
Last Modified: 09 Sep 2017 20:14
URI: https://research.sabanciuniv.edu/id/eprint/33789

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