Help Privacy Policy Disclaimer
  Advanced SearchBrowse




Journal Article

Optimal taxation when people do not maximize well-being


Gerritsen,  Aart
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

External Resource
No external resources are shared
Fulltext (restricted access)
There are currently no full texts shared for your IP range.
Fulltext (public)
There are no public fulltexts stored in PuRe
Supplementary Material (public)
There is no public supplementary material available

Gerritsen, A. (2016). Optimal taxation when people do not maximize well-being. Journal of Public Economics, 144, 122-139. doi:10.1016/j.jpubeco.2016.10.006.

Cite as: https://hdl.handle.net/11858/00-001M-0000-002C-4D6D-A
I derive the optimal nonlinear income tax when individuals do not necessarily maximize their own well-being. This generates a corrective argument for taxation: optimal marginal taxes are higher (lower) if individuals work too much (too little) from a well-being point of view. I allow for multi-dimensional heterogeneity and derive the optimal tax schedule in terms of measurable sufficient statistics. One of these statistics measures the degree to which individuals fail to optimize their labor supply. I empirically estimate this by using British life satisfaction data as a measure of well-being. I find that low-income workers tend to work 'too little' and high-income workers 'too much,' providing a motive for lower marginal tax rates at the bottom and higher marginal tax rates at the top of the income distribution.