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Optimal income taxation without commitment: policy implications of durable goods

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  • Shigeo Morita

    (Graduate School of Economics, Osaka University)

Abstract

This paper examines the design of a tax policy applied to the consumption of durable goods and labor income. We consider cases wherein the government cannot commit to a tax policy in the second period. If the type of taxpayers is unrevealed, it is optimal to tax the durable goods consumption of a high-income earner and subsidize that of a low-income earner. On the other hand, when the type of taxpayers is revealed, imposing a positive tax rate on a high-income earner fs durable goods consumption is desirable. This implies that the government should design taxes on durable goods consumption to be progressive and supplement its optimal tax policies.

Suggested Citation

  • Shigeo Morita, 2014. "Optimal income taxation without commitment: policy implications of durable goods," Discussion Papers in Economics and Business 14-32, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1432
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    References listed on IDEAS

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    More about this item

    Keywords

    Commitment; Optimal Taxation; Time consistency;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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