Optimal capital taxation for time-nonseparable preferences
We study optimal capital taxation in a dynamic Mirrleesian model with time-nonseparable preferences. The model covers the widely used cases of habit formation and durable consumption. Time-nonseparable preferences change labor supply incentives across time and thereby generate novel motives to distort capital accumulation decisions. We decompose intertemporal wedges (implicit capital taxes) into three components and provide conditions under which intertemporal wedges are positive. We derive a recursive formulation of constrained efficient allocations and evaluate the quantitative importance of habit formation for intertemporal wedges. In our baseline parameterization, habit formation reduces average intertemporal wedges by about 40 percent compared to the time-separable case.
Year of publication: |
2013
|
---|---|
Authors: | Kuhn, Moritz ; Koehne, Sebastian |
Institutions: | Society for Economic Dynamics - SED |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Should unemployment insurance be asset-tested?
Kuhn, Moritz, (2012)
-
On the First-Order Approach in Principal-Agent Models with Hidden Borrowing and Lending
Koehne, Sebastian, (2010)
-
Optimal Income Taxation with Asset Accumulation
Koehne, Sebastian, (2011)
- More ...