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  • Department of Economics / Institutionen för nationalekonomi med statistik
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  • School of Business, Economics and Law / Handelshögskolan
  • Department of Economics / Institutionen för nationalekonomi med statistik
  • Working papers
  • Redigera dokument
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Too slow a change? Deep habits, consumption shifts and transitory tax

Sammanfattning
This paper studies shifts in the consumption bundle when consumption is subject to habit formation, and consumers do not internalize this habit formation process. Habits are goodspecific, or ’deep’, and cause persistence in good-specific consumption. In addition, at the aggregate level, habits act as benchmark against which consumption is evaluated. I establish that a rapid transition is optimal if the persistence effect is relatively strong, and determine the path of taxes or subsidies that implements this transition, both when goods are produced competitively and when they are produced by monopolists. To explore the quantitative implications of the model I consider the introduction of a 10 percent charge on a subset of goods. I find that consumption adjusts inefficiently fast; implementing first-best adjustment requires a transitory discount of up to 60 percent of the cost increase.
Övrig beskrivning
JEL: D11, D62, H21, H23
URL:
http://hdl.handle.net/2077/52586
Samlingar
  • Working papers
Fil(er)
gupea_2077_52586_1.pdf (1.566Mb)
Datum
2017-06
Författare
van den Bijgaart, I.M.
Nyckelord
habit formation
projection bias
consumption shifts
optimal taxation
Publikationstyp
report
ISSN
1403-2465
Serie/rapportnr.
Working Papers in Economics
701
Språk
eng
Metadata
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