NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Optimal Policy with Heterogeneous Preferences

Louis Kaplow

NBER Working Paper No. 14170
Issued in July 2008
NBER Program(s):   EEE   LE   PE

Optimal policy rules--including those regarding income taxation, commodity taxation, public goods, and externalities--are typically derived in models with homogeneous preferences. This article reconsiders many central results for the case in which preferences for commodities, public goods, and externalities are heterogeneous. When preference differences are observable, standard second-best results in basic settings are unaffected, except those for the optimal income tax. Optimal levels of income taxation may be higher, the same, or lower on types who derive more utility from various goods, depending on the nature of preference differences and the concavity of the social welfare function. When preference differences are unobservable, all policy rules may change. The determinants of even the direction of optimal rule adjustments are many and subtle.

download in pdf format
   (200 K)

email paper

This paper is available as PDF (200 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14170

Published: Louis Kaplow, 2008. "Optimal Policy with Heterogeneous Preferences," Advances in Economic Analysis & Policy, Berkeley Electronic Press, vol. 8(1).

Users who downloaded this paper also downloaded these:
Kaplow w14397 Taxing Leisure Complements
Kaplow w17214 An Optimal Tax System
Kaplow w10407 On the Undesirability of Commodity Taxation Even When Income Taxation is Not Optimal
Diamond and Spinnewijn w15115 Capital Income Taxes with Heterogeneous Discount Rates
Golosov, Tsyvinski, and Werning New Dynamic Public Finance: A User's Guide
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us