Taxation of Durables, Non-durables and Earnings with Heterogeneous Preferences
In this paper, I adopt a dynamic structural approach to study the design of consumption and personal income taxes and their interactions. I develop a life-cycle model of
household consumption, saving and employment choices with multiple non-durable goods – necessities and luxuries – and partially irreversible durables. I estimate the model on
micro data and use it to quantitatively characterize the optimal tax rates on different commodities and on labor income in a utilitarian framework and under alternative scenarios of preference heterogeneity. I find that durables should be subsidized in presence of pre-commitment and uncertainty and that the optimal combination of taxes on non-durables and income crucially depends on the degree of preference heterogeneity. Allowing for government inequality aversion, I show that the model can rationalize the tax systems observed in reality and that differentiated consumption taxes serve a redistributive purpose jointly with the progressivity of labor income taxes.

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Please sign up for meetings here:
Date: 11 February 2020, 12:45 (Tuesday, 4th week, Hilary 2020)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar room A
Speaker: Francesca Parodi (Collegio Carlo Alberto, University of Turin, and IFS)
Organising department: Department of Economics
Part of: Applied Microeconomics Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Melis Clark