[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/osf/socarx/fpnw6.html
   My bibliography  Save this paper

Behavioral Optimal Taxation: The Case of Aspirations

Author

Listed:
  • Weber, Matthias
Abstract
I provide a simple two-period model comparing lump-sum taxes with proportional labor taxes. The difference to the classical optimal taxation literature is that I introduce a behavioral twist according to which people’s aspirations change from one period to another as suggested by empirical evidence. It turns out that the policy implication from this model can differ significantly from the one assuming full rationality. In the behavioral model, a lump-sum tax is much less attractive. This paper does not aim at providing a full-fledged quantitative model, it should rather be seen as a cautionary tale about the robustness of classical optimal taxation results when deviating from full rationality.

Suggested Citation

  • Weber, Matthias, 2019. "Behavioral Optimal Taxation: The Case of Aspirations," SocArXiv fpnw6, Center for Open Science.
    • Handle: RePEc:osf:socarx:fpnw6
    DOI: 10.31219/osf.io/fpnw6
    as

    Download full text from publisher

    File URL: https://osf.io/download/5c6a986d1431270016a0c3f5/
    Download Restriction: no
    File URL: https://libkey.io/10.31219/osf.io/fpnw6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Anita Kopányi-Peuker & Matthias Weber & Lauren Cohen, 2021. "Experience Does Not Eliminate Bubbles: Experimental Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 34(9), pages 4450-4485.
    2. Daniel Kahneman & Peter P. Wakker & Rakesh Sarin, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 375-406.
    3. Hommes, Cars & Massaro, Domenico & Weber, Matthias, 2019. "Monetary policy under behavioral expectations: Theory and experiment," European Economic Review, Elsevier, vol. 118(C), pages 193-212.
    4. Blumkin, Tomer & Ruffle, Bradley J. & Ganun, Yosef, 2012. "Are income and consumption taxes ever really equivalent? Evidence from a real-effort experiment with real goods," European Economic Review, Elsevier, vol. 56(6), pages 1200-1219.
    5. Matthias Sutter & Martin G. Kocher & Daniela Glätzle-Rützler & Stefan T. Trautmann, 2013. "Impatience and Uncertainty: Experimental Decisions Predict Adolescents' Field Behavior," American Economic Review, American Economic Association, vol. 103(1), pages 510-531, February.
    6. Matthias Weber & John Duffy & Arthur Schram, 2018. "An Experimental Study of Bond Market Pricing," Journal of Finance, American Finance Association, vol. 73(4), pages 1857-1892, August.
    7. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    8. Burks, Stephen & Carpenter, Jeffrey & Götte, Lorenz & Rustichini, Aldo, 2012. "Which measures of time preference best predict outcomes: Evidence from a large-scale field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 308-320.
    9. Ted O'Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 121-160.
    10. Gerritsen, Aart, 2016. "Optimal taxation when people do not maximize well-being," Journal of Public Economics, Elsevier, vol. 144(C), pages 122-139.
    11. Sausgruber, Rupert & Tyran, Jean-Robert, 2011. "Are we taxing ourselves?: How deliberation and experience shape voting on taxes," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 164-176, February.
    12. Carpenter, Jeffrey & Matthews, Peter Hans & Tabb, Benjamin, 2016. "Progressive taxation in a tournament economy," Journal of Public Economics, Elsevier, vol. 143(C), pages 64-72.
    13. Hommes, Cars, 2011. "The heterogeneous expectations hypothesis: Some evidence from the lab," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 1-24, January.
    14. Emmanuel Farhi & Xavier Gabaix, 2020. "Optimal Taxation with Behavioral Agents," American Economic Review, American Economic Association, vol. 110(1), pages 298-336, January.
    15. B. Douglas Bernheim & Antonio Rangel, 2005. "Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers," NBER Working Papers 11518, National Bureau of Economic Research, Inc.
    16. Bertasiute, Akvile & Massaro, Domenico & Weber, Matthias, 2020. "The behavioral economics of currency unions: Economic integration and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 112(C).
    17. Arno Riedl, 2010. "Behavioral and Experimental Economics Do Inform Public Policy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(1), pages 65-95, March.
    18. Fochmann, Martin & Kiesewetter, Dirk & Sadrieh, Abdolkarim, 2012. "Investment behavior and the biased perception of limited loss deduction in income taxation," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 230-242.
    19. Rudolf Kerschbamer & Georg Kirchsteiger, 2000. "Theoretically robust but empirically invalid? An experimental investigation into tax equivalence," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(3), pages 719-734.
    20. Matthias Weber & Arthur Schram, 2017. "The Non‐equivalence of Labour Market Taxes: A Real‐effort Experiment," Economic Journal, Royal Economic Society, vol. 127(604), pages 2187-2215, September.
    21. Rupert Sausgruber & Jean-Robert Tyran, 2005. "Testing the Mill hypothesis of fiscal illusion," Public Choice, Springer, vol. 122(1), pages 39-68, January.
    22. Raj Chetty, 2015. "Behavioral Economics and Public Policy: A Pragmatic Perspective," American Economic Review, American Economic Association, vol. 105(5), pages 1-33, May.
    23. Heemeijer, Peter & Hommes, Cars & Sonnemans, Joep & Tuinstra, Jan, 2009. "Price stability and volatility in markets with positive and negative expectations feedback: An experimental investigation," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1052-1072, May.
    24. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-484, July.
    25. Sausgruber, Rupert & Tyran, Jean-Robert, 2011. "Are we taxing ourselves?," Journal of Public Economics, Elsevier, vol. 95(1), pages 164-176.
    26. Brandts, Jordi & Gërxhani, Klarita & Schram, Arthur & Ygosse-Battisti, Jolanda, 2010. "Size doesn't matter! Gift exchange in experimental labor markets," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 544-548, December.
    27. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    28. Michael Hagerty & Ruut Veenhoven, 2003. "Wealth and Happiness Revisited – Growing National Income Does Go with Greater Happiness," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 64(1), pages 1-27, October.
    29. Koszegi, Botond & Rabin, Matthew, 2008. "Choices, situations, and happiness," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1821-1832, August.
    30. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
    31. Fehr, Ernst & Kirchler, Erich & Weichbold, Andreas & Gächter, Simon, 1998. "When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 324-351, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matthias Weber, 2021. "Behavioral optimal taxation: Aspirations," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 5(1), pages 19-26, Septembre.
    2. Matthias Weber & Arthur Schram, 2017. "The Non‐equivalence of Labour Market Taxes: A Real‐effort Experiment," Economic Journal, Royal Economic Society, vol. 127(604), pages 2187-2215, September.
    3. Martin Fochmann & Johannes Hewig & Dirk Kiesewetter & Katharina Schüßler, 2017. "Affective reactions influence investment decisions: evidence from a laboratory experiment with taxation," Journal of Business Economics, Springer, vol. 87(6), pages 779-808, August.
    4. Hirofumi Kurokawa & Tomoharu Mori & Fumio Ohtake, 2016. "A Choice Experiment on Taxes: Are Income and Consumption Taxes Equivalent?," ISER Discussion Paper 0966, Institute of Social and Economic Research, Osaka University.
    5. Blumkin, Tomer & Pinhas, Haim & Zultan, Ro’i, 2020. "Wage Subsidies and Fair Wages," European Economic Review, Elsevier, vol. 127(C).
    6. Werner, Peter & Riedl, Arno, 2018. "The role of experiments for policy design," Research Memorandum 022, Maastricht University, Graduate School of Business and Economics (GSBE).
    7. Weber, Matthias, 2022. "From Individual Human Decisions to Economic and Financial Policies," SocArXiv 5ju7z, Center for Open Science.
    8. Andrea Morone & Francesco Nemore & Simone Nuzzo, 2018. "Experimental evidence on tax salience and tax incidence," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(4), pages 582-612, August.
    9. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    10. Fochmann, Martin & Hemmerich, Kristina & Kiesewetter, Dirk, 2016. "Intrinsic and extrinsic effects on behavioral tax biases in risky investment decisions," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 218-231.
    11. James Alm & Kay Blaufus & Martin Fochmann & Erich Kirchler & Peter N. C. Mohr & Nina E. Olson & Benno Torgler, 2020. "Tax Policy Measures to Combat the SARS-CoV-2 Pandemic and Considerations to Improve Tax Compliance: A Behavioral Perspective," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 76(4), pages 396-428.
    12. Avram, Silvia, 2015. "Benefit losses loom larger than taxes: the effects of framing and loss aversion on behavioural responses to taxes and benefits," ISER Working Paper Series 2015-17, Institute for Social and Economic Research.
    13. Gerritsen, Aart, 2016. "Optimal taxation when people do not maximize well-being," Journal of Public Economics, Elsevier, vol. 144(C), pages 122-139.
    14. Hagen Ackermann & Martin Fochmann & Nadja Wolf, 2016. "The Effect of Straight-Line and Accelerated Depreciation Rules on Risky Investment Decisions—An Experimental Study," IJFS, MDPI, vol. 4(4), pages 1-26, October.
    15. Doerrenberg, Philipp & Duncan, Denvil, 2014. "Tax Incidence in the Presence of Tax Evasion," IZA Discussion Papers 8137, Institute of Labor Economics (IZA).
    16. Aart Gerritsen, 2024. "Optimal nonlinear taxation: a simpler approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 486-510, April.
    17. Tomer Blumkin & Haim Pinhas & Ro'i Zultan, 2017. "Leveraging Wage Subsidies to Facilitate Fair Wages and Increase Social Welfare," CESifo Working Paper Series 6597, CESifo.
    18. Tai-Sen He, 2020. "The framing effect of tax–transfer systems," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 6(2), pages 213-225, December.
    19. Carpenter, Jeffrey & Matthews, Peter Hans & Tabb, Benjamin, 2016. "Progressive taxation in a tournament economy," Journal of Public Economics, Elsevier, vol. 143(C), pages 64-72.
    20. Lu, Kelin, 2022. "Overreaction to capital taxation in saving decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:osf:socarx:fpnw6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: OSF (email available below). General contact details of provider: https://arabixiv.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.