Date of this Version
Journal of Public Economics
The prominent but unproven intuition that preference heterogeneity reduces redistribution 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 familiar 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.
© 2015. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
optimal taxation, preference heterogeneity, redistribution, sufficient statistics
Lockwood, B. B., & Weinzierl, M. (2015). De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution. Journal of Public Economics, 124 74-80. http://dx.doi.org/10.1016/j.jpubeco.2015.01.002
Date Posted: 27 November 2017
This document has been peer reviewed.