Hellwig, Christian (2021) Static and Dynamic Mirrleesian Taxation with Non-separable Preferences: A Unified Approach. TSE Working Paper, n. 21-1224, Toulouse

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I analyze dynamic Mirrlees taxation with preferences that are non-separable between con-
sumption, leisure and type, which determines both ability and consumption needs. I show how
to account for non-separable preferences through a simple change in probability measures. I ge-
neralize the existing Inverse Euler Equation and optimal static labor tax formulae and provide
a unied intuition based on a set of perturbations around the optimal allocations that preserve
expected utility and incentive compatibility. Non-separability in preferences gives rise to a new
tradeo between current and future redistribution that is internalized by the planner's solution
but not by private savings decisions. This leads to a novel rationale to subsidize (tax) savings
and make labor taxes more (less) persistent, when more productive agents also have higher
(lower) consumption needs.

Item Type: Monograph (Working Paper)
Language: English
Date: June 2021
Place of Publication: Toulouse
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 15 Jun 2021 14:56
Last Modified: 18 Nov 2021 08:21
OAI Identifier: oai:tse-fr.eu:125745
URI: https://publications.ut-capitole.fr/id/eprint/43619
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