Pareto-improving tax policies under hyperbolic discounting
This paper investigates the welfare implications of tax policies in the economy with present-biased consumers. We show that consumption taxes, income subsidies, or capital subsidies can improve not only hyperbolically discounted intertemporal utilities, but also exponentially discounted commitment u...
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sg-ntu-dr.10356-1513682021-07-09T02:16:22Z Pareto-improving tax policies under hyperbolic discounting Kang, Minwook School of Social Sciences Social sciences::Economic development Present Bias Hyperbolic Discounting This paper investigates the welfare implications of tax policies in the economy with present-biased consumers. We show that consumption taxes, income subsidies, or capital subsidies can improve not only hyperbolically discounted intertemporal utilities, but also exponentially discounted commitment utilities. This finding implies that both consumers and the government can have incentives to adopt tax policies against present-biased decisions. All the results are shown in a three-period model with general utility and production functions. A steady-state analysis indicates that the proposed tax policy is effective in recovering the welfare/capital loss due to consumers’ present bias. Ministry of Education (MOE) Nanyang Technological University The author is grateful to Lei Sandy Ye, Lei Wang, Xiao Wei, the anonymous referee and editor Ronald Davies for their helpful comments. The author acknowledges the research support from Nanyang Technological University (NTU) AcRF Tier-1 Grant (RG62/18). 2021-07-09T02:16:22Z 2021-07-09T02:16:22Z 2018 Journal Article Kang, M. (2018). Pareto-improving tax policies under hyperbolic discounting. International Tax and Public Finance, 26(3), 618-660. https://dx.doi.org/10.1007/s10797-018-9527-y 0927-5940 0000-0003-2369-7894 https://hdl.handle.net/10356/151368 10.1007/s10797-018-9527-y 2-s2.0-85057986750 3 26 618 660 en RG62/18 International Tax and Public Finance © 2018 Springer Science+Business Media, LLC, part of Springer Nature. All rights reserved. |
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Social sciences::Economic development Present Bias Hyperbolic Discounting Kang, Minwook Pareto-improving tax policies under hyperbolic discounting |
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This paper investigates the welfare implications of tax policies in the economy with present-biased consumers. We show that consumption taxes, income subsidies, or capital subsidies can improve not only hyperbolically discounted intertemporal utilities, but also exponentially discounted commitment utilities. This finding implies that both consumers and the government can have incentives to adopt tax policies against present-biased decisions. All the results are shown in a three-period model with general utility and production functions. A steady-state analysis indicates that the proposed tax policy is effective in recovering the welfare/capital loss due to consumers’ present bias. |
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School of Social Sciences |
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School of Social Sciences Kang, Minwook |
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Article |
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Kang, Minwook |
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Kang, Minwook |
title |
Pareto-improving tax policies under hyperbolic discounting |
title_short |
Pareto-improving tax policies under hyperbolic discounting |
title_full |
Pareto-improving tax policies under hyperbolic discounting |
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Pareto-improving tax policies under hyperbolic discounting |
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Pareto-improving tax policies under hyperbolic discounting |
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pareto-improving tax policies under hyperbolic discounting |
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2021 |
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https://hdl.handle.net/10356/151368 |
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