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  • Journal of Public Economics

De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution

By: Benjamin B Lockwood and Matthew Weinzierl
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Abstract

The prominent but unproven intuition that preference heterogeneity reduces redistribution in a standard optimal tax model is shown to hold under the plausible condition that the distribution of preferences for consumption relative to leisure rises, in terms of first-order stochastic dominance, with income. Given familiar functional form assumptions on utility and the distributions of ability and preferences, a simple statistic for the effect of preference heterogeneity on marginal tax rates is derived. Numerical simulations and suggestive empirical evidence demonstrate the link between this potentially measurable statistic and the quantitative implications of preference heterogeneity for policy.

Keywords

Motivation and Incentives; Income; Decision Choices and Conditions; Consumer Behavior; Taxation; Microeconomics; Macroeconomics

Citation

Lockwood, Benjamin B., and Matthew Weinzierl. "De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution." Journal of Public Economics 124 (April 2015): 74–80. (Also NBER Working Paper Series, No. 17784, September 2014 and Harvard Business School Working Paper, No. 12-063, January 2012.)
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About The Author

Matthew C. Weinzierl

Business, Government and the International Economy
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