The Credibility of Commitment and Optimal Nonlinear Savings Taxation

Thursday 4 May 2017, 1.00PM to 2.00pm

Speaker(s): Alan Krause

Abstract: We compare optimal nonlinear savings taxation under different assumptions regarding the ability of the government to commit to its future tax policy. In particular, we incorporate the possibility that individuals may differ in their beliefs regarding the probability of commitment. When these beliefs are homogeneous, optimal marginal savings tax rates always fall between those under the polar cases of full-commitment (zero marginal savings taxation) and no-commitment (progressive marginal savings taxation). This is no longer the case when beliefs are heterogeneous. Comparisons are also made with 'sustainable' savings taxation, in which the government designs the tax system to obtain commitment credibility.

Location: Economics Staff Room A/EC202

Admission: Staff and PhD students