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  • 标题:Simulations of fundamental tax reform with irrational households
  • 本地全文:下载
  • 作者:Michael Williams
  • 期刊名称:Economics Bulletin
  • 电子版ISSN:1545-2921
  • 出版年度:2005
  • 卷号:8
  • 出版社:Economics Bulletin
  • 摘要:Dynamic tax models have been devised to examine the effects of fundamental tax reform replacing the current U. S. federal tax system with a national retail sales tax. These models impose a constant and positive rate of time preference on households, in the tradition of the rational, time-consistent consumer. Evidence suggests, however, that households are impatient and time-inconsistent, questioning the validity of a constant rate of time preference. This paper modifies an existing dynamic life-cycle tax model so that it can incorporate this time inconsistency, using a construct known as hyperbolic discounting. We find a significant change in the model's predictions of the effects of fundamental tax reform, including smaller short term losses and smaller long term gains, when the standard assumption of a constant rate of time preference is replaced with the hyperbolic discounting assumption.
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