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Temptation-Driven Behavior and Taxation: A Quantitative Analysis in a Life-Cycle Model

Kumru, Cagri; Thanopoulos, Athanasios


This paper examines the impact of labor and capital income taxes in a stochastic overlapping generations (OLG) economy where agents face borrowing constraints and their behavior is temptation driven. We quantitatively establish that the existence of temptation in preferences may function as an opposing mechanism to modeling choices, such as liquidity constraints, life-cycle structure, and idiosyncratic earnings risks, that are critical in delivering a positive capital income tax rate. We show...[Show more]

CollectionsANU Research Publications
Date published: 2015
Type: Journal article
Source: Economic Inquiry
DOI: 10.1111/ecin.12170


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