This paper shows that the combination of habit formation - present consumption creating additional consumption needs in …-best setting the optimal solution can be decentralized by a simple "Pigouvian" (paternalistic) consumption tax (along with suitable … lump-sum taxes). In a second-best setting, when personalized lump-sum transfers are not available, consumption taxes may …

We discuss recent developments in the literature that studies how the dynamics of earnings and wages affect consumption … choices over the life cycle. We start by analyzing the theoretical impact of income changes on consumption - highlighting the … contributions, distinguishing between papers that use only income data and those that use both income and consumption data. The …