TY  - JOUR
AU  - Diamond,Peter A.
AU  - Spinnewijn,Johannes
TI  - Capital Income Taxes with Heterogeneous Discount Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15115
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15115
L1  - http://www.nber.org/papers/w15115.pdf
N1  - Author contact info:
Peter A. Diamond
15 Franklin Rd
Lexington, MA 02420
Tel: 617/253-3363
Fax: 617/253-1330
E-Mail: pdiamond@mit.edu

Johannes Spinnewijn
Department of Economics
London School of Economics, Houghton Street
London, WC2A 2AE
E-Mail: J.Spinnewijn@lse.ac.uk
AB  - With heterogeneity in both skills and discount factors, the Atkinson-Stiglitz theorem that savings should not be taxed does not hold. We consider a model with heterogeneity of preferences at each earnings level. With some assumptions on the equilibrium, a small savings tax on high earners and a small savings subsidy on low earners both increase welfare, regardless of the correlation between ability and discount factor. Key is that types who value future consumption less are more tempted to switch to a lower paid job. Extending Saez (2002), a uniform savings tax increases welfare if the correlation of skill with discount factor is su¢ ciently high. Some optimal tax results and empirical evidence to support the assumptions are presented.
ER  -