De Gustibus Non Est Taxandum: Heterogeneity in Preferences and Optimal Redistribution

27 Pages Posted: 26 Sep 2014

See all articles by Benjamin B Lockwood

Benjamin B Lockwood

University of Pennsylvania - The Wharton School

Matthew Weinzierl

Harvard Business School - Business, Government and the International Economy Unit

Date Written: September 5, 2014

Abstract

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.

Suggested Citation

Lockwood, Benjamin B and Weinzierl, Matthew, De Gustibus Non Est Taxandum: Heterogeneity in Preferences and Optimal Redistribution (September 5, 2014). Harvard Business School BGIE Unit Working Paper No. 12-063. Available at SSRN: https://ssrn.com/abstract=2500896 or http://dx.doi.org/10.2139/ssrn.2500896

Benjamin B Lockwood

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Matthew Weinzierl (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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