Optimal Taxation with Behavioral Agents

Farhi, Emmanuel; Gabaix, Xavier

doi:10.3386/w21524

Cited by 105 publications

(165 citation statements)

References 61 publications

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“…This article shows that the degree of inattention to energy costs in the appliance market is highly heterogeneous, and only a fraction of consumers does not pay attention to this attribute. As shown by Farhi and Gabaix (), quantifying heterogeneity in misperceptions is important for the design of optimal policy accounting for behavioral bias. In the energy context, heterogeneous misperceptions provide one argument in favor of a Pigouvian quantity instrument, such as a standard, relative to a price instrument.…”

Section: Introductionmentioning

confidence: 99%

How consumers respond to product certification and the value of energy information

Houde

2018

The RAND J of Economics

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I study how consumers respond to competing pieces of information that differ in their degree of complexity and informativeness. In particular, I study the choice of refrigerators in the United States, where a mandatory disclosure labelling program provides detailed information about energy cost, and a certification labelling program provides a simple binary-star rating related to energy use. I find that the coarse certification may help some consumers to pay attention to energy information, but for others, it may crowd out efforts to process more accurate, but complex, energy information. The effect of the certification on overall energy use is thus ambiguous. * ETH Zürich, Switzerland; shoude@ethz.ch. I am indebted to

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Section: Introductionmentioning

confidence: 99%

How consumers respond to product certification and the value of energy information

Houde

2018

The RAND J of Economics

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“…Our discussion largely focuses on counterfactual policies, by which we mean policies that are hard to evaluate empirically before implementing them, but we will also touch on the case of policies that can more easily be studied in action. 1 The contrast between mechanism and allocation policies is not the same as the distinction between nudges and traditional policy instruments as introduced by Thaler and Sunstein (2009) and analyzed in detail by Farhi and Gabaix (2017). Many nudges, such as reminders, could be viewed as mechanism policies that target "behavioral" mechanisms, like forgetfulness, but we will view others, such as defaults, as allocation policies.…”

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confidence: 99%

Frictions or Mental Gaps: What's Behind the Information We (Don't) Use and When Do We Care?

Handel

Schwartzstein²

2018

Journal of Economic Perspectives

159

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In a number of situations, there is strong evidence that people do not translate readily available information into the knowledge that would help them make better decisions. For example, people may choose a health insurance plan that costs $500 per year more in premiums in order to obtain a deductible that is $250 lower-despite having access to open enrollment booklets containing relevant information (Handel 2013;Bhargava, Loewenstein, and Sydnor 2017). People buy branded drugs over equivalent but less-expensive generics (Bronnenberg, Dubé, Gentzkow, and Shapiro 2015) even though information printed on the package reveals their equivalence. Investors pay a range of fees for investing in S&P 500 index funds-and index funds with higher fees have meaningful market shares (Hortaçsu and Syverson 2004). Consumers appear to demand the wrong cell phone plans given their previous usage patterns (Grubb and Osborne 2015).Why don't people use available information? The many possibilities discussed in the research literature broadly fall into two camps, which we refer to as frictions and mental gaps. The frictions camp focuses on costs of acquiring and processing information. A consumer shopping in a health insurance exchange incurs a cost to explore more of the options in the choice set and to assess them. This camp, and the closely related framework of "rational inattention," maintains the neoclassical assumption that people form accurate beliefs using the information that is worth

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“…Paternalistic concerns additionally enter the optimal tax rule via labor supply changes, captured by the response of z. In this way, the tax rule in (3) can be decomposed, and this decomposition is similar in spirit to the corrective parts of the tax formulae in the new optimal tax literature with behavioral agents, such as Farhi and Gabaix (2015) and Gerritsen (2016).…”

Section: Optimal Linear Income Taxation Under Non-welfarist Objectivesmentioning

confidence: 99%

“…Roemer et al (2003) employ a maximin type of social goal and characterize how well tax and transfer systems achieve the goal of equality of opportunity. Second, our work is related to new contributions in behavioral public finance, which address the situation where the behavioral biases of the individuals lead the social planner to adopt a different objective function than the individuals have; see Chetty (2015), Gerritsen (2016), Farhi and Gabaix (2015). A third strand of literature considers taxation and development more generally, such as Gordon and Li (2009), Keen (2009Keen ( , 2012, Bird and Gendron (2007) and Besley and Persson (2013).…”

Section: Introductionmentioning

confidence: 99%

Optimal taxation and public provision for poverty reduction

Kanbur

Paukkeri

Pirttilä

et al. 2017

Int Tax Public Finance

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The existing literature on optimal taxation typically assumes there exists a capacity to implement complex tax schemes, which is not necessarily the case for many developing countries. We examine the determinants of optimal redistributive policies in the context of a developing country that can only implement linear tax policies due to administrative reasons. Further, the reduction of poverty is typically the expressed goal of such countries, and this feature is also taken into account in our model. We derive the optimality conditions for linear income taxation, commodity taxation, and public provision of private and public goods for the poverty minimization case and compare the results to those derived under a general welfarist objective function. We also study the implications of informality on optimal redistributive policies for such countries. The exercise reveals non-trivial differences in optimal tax rules under the different assumptions. B Tuuli Paukkeri

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Optimal Taxation with Behavioral Agents

Cited by 105 publications

References 61 publications

How consumers respond to product certification and the value of energy information

How consumers respond to product certification and the value of energy information

Frictions or Mental Gaps: What's Behind the Information We (Don't) Use and When Do We Care?

Optimal taxation and public provision for poverty reduction

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