De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution
The prominent but unproven intuition that preference heterogeneity reduces re-distribution in a standard optimal tax model is shown to hold under the plausible condition that the distribution of preferences for consumption relative to leisure rises, in terms of first-order stochastic dominance, with income. Given mainstream functional form assumptions on utility and the distributions of ability and preferences, a simple statistic for the effect of preference heterogeneity on marginal tax rates is derived. Numerical simulations and suggestive empirical evidence demonstrate the link between this potentially measurable statistic and the quantitative implications of preference heterogeneity for policy.
We are grateful to Robert Barro, Rafael di Tella, Alex Gelber, Caroline Hoxby, Louis Kaplow, Narayana Kocherlakota, Erzo F.P. Luttmer, Greg Mankiw, David Moss, Eric Nelson, Julio Rotemberg, Dan Shoag, Aleh Tsyvinski, Glen Weyl, Danny Yagan, anonymous referees and seminar participants at Harvard and Michigan for helpful comments and suggestions on earlier versions of this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Benjamin B. Lockwood & Matthew Weinzierl, 2015. "De Gustibus non est Taxandum: Heterogeneity in preferences and optimal redistribution," Journal of Public Economics, vol 124, pages 74-80. citation courtesy of