Scandinavian Working Papers in Economics
Working Paper Series,
Uppsala University, Department of Economics
No 2004:9: Taxation and Heterogeneous Preferences
Sören Blomquist () and Vidar Christiansen ()
Additional contact information
Sören Blomquist: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Vidar Christiansen: Department of Economics, Postal: University of Oslo, P.O. Box 1095, Blindern, 0317 Oslo,, Norway
Abstract: Non-linear income taxes and linear commodity taxes are analysed when people differ with respect to ability, high-skilled agents have heterogeneous preferences, and neither individual abilities nor preferences are observable. The paper highlights how informational constraints may motivate differential treatment of people with different preferences for leisure even if unequal treatment is not desirable per se. Which preference type that will be better or worse off, is shown to depend on the self-selection constraints associated with the information asymmetry. We characterize pure income tax optima, which may be bunching or separating optima. In particular, the income tax may not be able to distinguish between those low-income people who are low-skilled and those who have strong preference for leisure. As is shown, there may still be an impact on the optimum income tax schedule as it will depend on the composition of the population with respect to types of individuals. Finally, the paper addresses what can be achieved by commodity taxes when preferences are heterogeneous, in particular, in terms of targeting groups that the income tax is incapable of discriminating between.
Keywords: Optimum taxation; Heterogeneous preferences; Asymmetric information
29 pages, July 7, 2004
Full text files
wp2004_9.pdf
Questions (including download problems) about the papers in this series should be directed to Ulrika Öjdeby ()
Report other problems with accessing this service to Sune Karlsson ().
This page generated on 2024-02-05 17:14:00.