Dynamic Corrective Taxes with Time-Varying Salience
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.
We thank Hunt Allcott, Terry Iverson, Jacob LaRiviere, Andrea La Nauze, Pete Maniloff, Chuck Mason, Kevin Novan, Linda Thunstrom, Klaas van 't Veld, and numerous seminar participants for helpful comments. Any errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Ben Gilbert & Joshua S. Graff Zivin, 2020. "Dynamic corrective taxes with time-varying salience," Journal of Environmental Economics and Management, . citation courtesy of