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Endogenous discounting, wariness, and efficient capital taxation

Araujo, Aloisio, Gama, Juan Pablo, Novinski, Rodrigo and Pascoa, Mario R. (2019) Endogenous discounting, wariness, and efficient capital taxation Journal of Economic Theory, 183. pp. 520-545.

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When the discount factors that infinite lived consumers use at each date are not predetermined but are instead chosen within some set, depending on what the consumption plan is, impatience might not hold. More precisely, if the utility is the infimum of discounted utilities over that set of discount factor sequences, then preferences may be just upper semi-impatient. Such lack of lower semi-impatience, which we refer to as wariness, consists in neglecting distant gains but not distant losses. Examples are the precautionary case (a concern with the worst lifetime outcome) and the habit persistence case (a concern with a fall in living standards). The implementation of efficient allocations by trading assets sequentially requires taxes that avoid excessive savings by raising the opportunity of cost of saving up to the point of matching the marginal benefit of dishoarding at distant dates. Taxes on equilibrium plans are zero in many contexts.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
Araujo, Aloisio
Gama, Juan Pablo
Novinski, Rodrigo
Pascoa, Mario
Date : September 2019
DOI : 10.1016/j.jet.2019.07.004
Copyright Disclaimer : © 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Depositing User : Clive Harris
Date Deposited : 29 Jul 2019 07:25
Last Modified : 29 Jul 2019 13:15

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