Temptation and taxation with elastic labor

Temptation and Taxation with Elastic Labor

In this paper we study the corrective role of income taxation in a model with the Gul and Pesendorfer type of temptation and self-control preferences embedded with labor/leisure choice. “Excessive” impatience created by the presence of temptation in preferences causes a bias in favour of present consumption and a two-dimensional problem: under-saving and over-supply-of-labor. In such an environ...

To “ Temptation and Taxation ” (

Temptation and Taxation

In this paper we attempt to (i) extend the competitive equilibrium neoclassical growth model to incorporate consumer preferences that feature temptation and selfcontrol as in the framework developed by Gul and Pesendorfer; (ii) use the model to analyze taxation and welfare; and (iii) extend and specialize the Gul-Pesendorfer temptation formulation to be dynamic and, in particular, quasi-geometr...

Temptation and Taxation by per Krusell,

We study optimal taxation when consumers have temptation and self-control problems. Embedding the class of preferences developed by Gul and Pesendorfer into a standard macroeconomic setting, we first prove, in a two-period model, that the optimal policy is to subsidize savings when consumers are tempted by “excessive” impatience. The savings subsidy improves welfare because it makes succumbing ...

Taxation and Labor Supply Decisions: