Post by Sapphire Capital on Aug 1, 2008 3:09:27 GMT 4
Optimal Policy with Heterogeneous Preferences
Louis Kaplow
Harvard University - Harvard Law School; National Bureau of Economic Research (NBER)
July 22, 2008
Harvard Law and Economics Discussion Paper No. 617
Abstract:
Optimal policy rules - including those regarding income taxation, commodity taxation, public goods, and externalities - are typically derived in models with homogeneous preferences. This article reconsiders many central results for the case in which preferences for commodities, public goods, and externalities are heterogeneous. When preference differences are observable, standard second-best results in basic settings are unaffected, except those for the optimal income tax. Optimal levels of income taxation may be higher, the same, or lower on types who derive more utility from various goods, depending on the nature of preference differences and the concavity of the social welfare function. When preference differences are unobservable, all policy rules may change. The determinants of even the direction of optimal rule adjustments are many and subtle.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1170048_code837010.pdf?abstractid=1170048&mirid=3
Louis Kaplow
Harvard University - Harvard Law School; National Bureau of Economic Research (NBER)
July 22, 2008
Harvard Law and Economics Discussion Paper No. 617
Abstract:
Optimal policy rules - including those regarding income taxation, commodity taxation, public goods, and externalities - are typically derived in models with homogeneous preferences. This article reconsiders many central results for the case in which preferences for commodities, public goods, and externalities are heterogeneous. When preference differences are observable, standard second-best results in basic settings are unaffected, except those for the optimal income tax. Optimal levels of income taxation may be higher, the same, or lower on types who derive more utility from various goods, depending on the nature of preference differences and the concavity of the social welfare function. When preference differences are unobservable, all policy rules may change. The determinants of even the direction of optimal rule adjustments are many and subtle.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1170048_code837010.pdf?abstractid=1170048&mirid=3