transitory shocks? The implications for consumption and welfare depend crucially on the answer to this question. We use CEX … repeated cross-section data on consumption and income to decompose idiosyncratic changes in income into predictable life … evolution of consumption and income inequality well and delivers two main results. First, we find that permanent changes in …

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 …