American Economic Journal: Macroeconomics
no. 4, October 2023
I quantitatively characterize optimal consumption and labor income taxes in a structural life-cycle model of household consumption, saving, and employment choices that allows for irreversibility of durable goods and preference heterogeneity. I find that durables should be subsidized and nondurables should be taxed at a uniform rate. The durable subsidy is driven by the life-cycle features of the model together with durables' irreversibility and borrowing constraints. Uniform taxation on nondurables holds under exogenous and endogenous—fully or weakly separable—labor supply and it relies on homogeneity of intertemporal preferences. Allowing for government's equity concerns, I show that the model rationalizes the tax practice.
"Taxation of Consumption and Labor Income: A Quantitative Approach."
American Economic Journal: Macroeconomics,
Intertemporal Household Choice; Life Cycle Models and Saving
Household Finance: Household Saving, Borrowing, Debt, and Wealth
Taxation and Subsidies: Efficiency; Optimal Taxation
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Fiscal Policies and Behavior of Economic Agents: Household
Time Allocation and Labor Supply