Working Paper: CEPR ID: DP17146
Authors: Charles Brendon
Abstract: This paper analyses the design of optimal nonlinear savings taxation, in a multi-period consumption-savings economy where consumers face persistent, uninsurable shocks to the marginal value that they place on consuming. Its main contributions are: (a) to show that shocks of this kind generically justify positive marginal savings taxes, and (b) to characterise these taxes by reference to a limited number of sufficient statistics. The method for obtaining this characterisation is generalisable, and provides a roadmap for reconnecting `Mirrleesian' and `sufficient statistics' approaches to dynamic taxation. Intuitively, dynamic asymmetric information problems imply significant restrictions on intertemporal consumption elasticities. These restrictions keep sufficient statistics representations manageable, despite the multi-dimensional choice setting.
Keywords: nonlinear taxation; sufficient statistics; mirrleesian taxation; new dynamic public finance
JEL Codes: D82; E21; E61; H21; H24; H30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| persistent uninsurable shocks to the marginal utility of consumption (D11) | positive marginal savings taxes (H21) |
| savings distribution (D14) | marginal tax rate on savings (H21) |
| positive marginal savings taxes (H21) | revenue generated from these taxes (H27) |
| revenue generated from these taxes (H27) | positive uniform lump-sum transfer each period (D15) |
| positive uniform lump-sum transfer each period (D15) | higher consumption for individuals with high marginal utility (D11) |