Dynamic Corrective Taxes with Time-Varying Salience

60 Pages Posted: 17 Sep 2018

See all articles by Ben Gilbert

Ben Gilbert

Colorado School of Mines - Division of Economics and Business

Joshua Graff Zivin

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS); National Bureau of Economic Research (NBER)

Date Written: September 2018

Abstract

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.

Suggested Citation

Gilbert, Ben and Graff Zivin, Joshua, Dynamic Corrective Taxes with Time-Varying Salience (September 2018). NBER Working Paper No. w25014, Available at SSRN: https://ssrn.com/abstract=3246837

Ben Gilbert (Contact Author)

Colorado School of Mines - Division of Economics and Business ( email )

1500 Illinois Street
Golden, CO 80401
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Joshua Graff Zivin

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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