University of Chicago
NBER Working Papers and Publications
|May 2014||A Big Data Approach to Optimal Sales Taxation|
with Christian Baker, Richard W. Evans, Kenneth L. Judd, Kerk L. Phillips: w20130
We characterize and demonstrate a solution method for an optimal commodity (sales) tax problem consisting of multiple goods, heterogeneous agents, and a nonconvex policy maker optimization problem. Our approach allows for more dimensions of heterogeneity than has been previously possible, incorporates potential model uncertainty and policy objective uncertainty, and relaxes some of the assumptions in the previous literature that were necessary to generate a convex optimization problem for the policy maker. Our solution technique involves creating a large database of optimal responses by different individuals for different policy parameters and using "Big Data" techniques to compute policy maker objective values over these individuals. We calibrate our model to the United States and test th...