NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Dynamic Corrective Taxes with Time-Varying Salience

Ben Gilbert, Joshua S. Graff Zivin

NBER Working Paper No. 25014
Issued in September 2018
NBER Program(s):Environment and Energy Economics, Public Economics

The intermittency of payment for many goods creates a disconnect between paying and consuming such that the marginal price is not always salient when consumption decisions are made. This paper derives optimal dynamic corrective taxes when there are externalities as well as internalities from inattention and persistence in consumption across periods. Our optimal taxes address dynamic inefficiencies that are not captured in static models of inattention. We also characterize a second-best constant tax and the excess burden associated with time-invariant tax rates. We then calibrate the model to U.S. residential electricity consumption.

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Document Object Identifier (DOI): 10.3386/w25014

 
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