Working Paper: NBER ID: w25014
Authors: Ben Gilbert; Joshua S. Graff Zivin
Abstract: The intermittency of payment for many goods creates a disconnect between paying and consuming such that the marginal price is not always salient when consumption decisions are made. This paper derives optimal dynamic corrective taxes when there are externalities as well as internalities from inattention and persistence in consumption across periods. Our optimal taxes address dynamic inefficiencies that are not captured in static models of inattention. We also characterize a second-best constant tax and the excess burden associated with time-invariant tax rates. We then calibrate the model to U.S. residential electricity consumption.
Keywords: dynamic taxes; corrective taxes; price salience; consumer behavior; externalities
JEL Codes: D03; D11; D62; D91; H21; H23; L97; Q40; Q41; Q50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Optimal dynamic corrective taxes (H21) | Consumer behavior (D19) |
| Forward-looking behavior of households (D15) | Optimal dynamic corrective taxes (H21) |
| Type of consumer (fully naive, partially naive, sophisticated) (D80) | Optimal dynamic corrective taxes (H21) |
| Salient periods (E32) | Optimal dynamic corrective taxes (H21) |
| Optimal dynamic corrective taxes (H21) | Addressing externalities and internalities (D62) |
| Welfare effects of time-invariant taxes (H31) | Internalities faced by naive agents (D80) |
| Internalities faced by naive agents (D80) | Excess burdens (H22) |
| Optimal tax increases (H21) | Salient window (Y60) |