1. Temptation-driven behavior and taxation: a quantitative analysis in a life-cycle model
- Author
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Kumru, Cagri S. and Thanopoulos, Athanasios C.
- Subjects
Tax rates -- Economic aspects -- Forecasts and trends ,Learning models (Stochastic processes) -- Analysis ,Corporate income taxes -- Influence ,Market trend/market analysis ,Business, general ,Economics - Abstract
This paper examines the impact of labor and capital income taxes in a stochastic overlapping generations (OLG) economy where agents face borrowing constraints and their behavior is temptation driven. We quantitatively establish that the existence of temptation in preferences may function as an opposing mechanism to modeling choices, such as liquidity constraints, life-cycle structure, and idiosyncratic earnings risks, that are critical in delivering a positive capital income tax rate. We show that a sufficiently large measure of individuals having self-control preferences, or alternatively, a sufficiently high cost of exercising self-control, puts downward pressure on the optimal capital income tax rate. (JEL E21, E62, H55), I. INTRODUCTION A central research question in the dynamic fiscal policy literature during the last 30 years or so, is whether under fairly general modeling choices, the government should impose [...]
- Published
- 2015
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