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SSRN Electronic Journal
Article . 2012 . Peer-reviewed
Data sources: Crossref
EconStor
Research . 2012
Data sources: EconStor
EconStor
Research . 2012
Data sources: EconStor
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Adaptation, Anticipation-Bias and Optimal Income Taxation

Authors: Aronsson, Thomas; Schöb, Ronnie;

Adaptation, Anticipation-Bias and Optimal Income Taxation

Abstract

Adaptation is omnipresent but people systematically fail to correctly anticipate the degree to which they adapt. This leads individuals to make inefficient intertemporal decisions. This paper concerns optimal income taxation to correct for such anticipation-biases in a framework where consumers adapt to earlier consumption levels through a habit-formation process. The analysis is based on a general equilibrium OLG model with endogenous labor supply and savings where each consumer lives for three periods. Our results show how a paternalistic government may correct for the effects of anticipation-bias through a combination of time-variant marginal labor income taxes and savings subsidies. Furthermore, the optimal policy mix remains the same, irrespective of whether consumers commit to their original life-time plan for work hours and savings decided upon in the first period of life or re-optimize later on when realizing the failure to adapt.

Keywords

optimal, anticipation-bias, paternalism, habit-formation, adaptation, Zeitpräferenz, Optimale Besteuerung, Einkommensteuer, Bias, 300 Sozialwissenschaften::330 Wirtschaft::336 Öffentliche Finanzen, D91, Konsumtheorie, optimal taxation,adaptation,habit-formation,anticipation-bias,paternalism, Optimal taxation; adaptation; habit-formation; anticipation-bias; paternalism, optimal taxation, adaptation, habit-formation, anticipation-bias, paternalism, ddc:330, optimal taxation, Optimal taxation, D61, Erwartungstheorie, Anpassung, D03, H21, taxation, Theorie, jel: jel:D61, jel: jel:D03, jel: jel:H21, jel: jel:D91

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
0
Average
Average
Average
bronze