Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 833: Tax Policy and Present-Biased Preferences: Paternalism under International Capital Mobility

Thomas Aronsson () and Tomas Sjögren ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Tomas Sjögren: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: This paper deals with tax-policy responses to quasi-hyperbolic discounting. Earlier research on optimal paternalism typically abstracts from capital mobility. If capital is mobile between countries, it may no longer be possible for national governments to control domestic savings via capital taxation (as in a closed economy). In this paper, we take a broad perspective on public policy responses to self-control problems by showing how these responses vary (i) between closed and open economies, (ii) between small open and large open economies, and (iii) depending on whether or not both source based and residence based capital taxes can be used.

Keywords: Quasi-hyperbolic discounting; capital mobility; source based taxation; residence based taxation; labor income taxation

JEL-codes: D61; D91; H21; H23

44 pages, October 17, 2011

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