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Optimal Indirect Taxation when Consumers Have Preferences for Immediate Gratification

Author

Listed:
  • Matteo Bassi

    (University of Naples “Federico II”- Department of Economic and Statistical Sciences and CSEF)

Abstract

This paper studies an optimal taxation problem under the assumption that consumers have time-inconsistent preferences for immediate gratification. Because of that, consumers consciously overconsume one good, and regret later for the lack of self-control that has generated excessive consumption. The paper shows that, when agents are privately informed on their degree of rationality, the uniform commodity taxation theorem of Atkinson and Stiglitz (1976) does not hold, and goods that generate immediate gratification should be taxed differently from other goods. These results are not driven by the planner’s paternalism, but only by incentive considerations.

Suggested Citation

  • Matteo Bassi, 2014. "Optimal Indirect Taxation when Consumers Have Preferences for Immediate Gratification," Rivista di Politica Economica, SIPI Spa, issue 3, pages 279-304, July-Sept.
    • Handle: RePEc:rpo:ripoec:y:2014:i:3:p:279-304
    as

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    More about this item

    Keywords

    bounded rationality; optimal taxation; minimal paternalism; screening.;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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