arbiter
JournalsAccount

Optimal Dynamic Income Taxation Under Quasi‐Hyperbolic Discounting and Idiosyncratic Productivity Shocks

Yunmin Chen & Jang‐Ting Guo

Journal of Public Economic Theory2026https://doi.org/10.1111/jpet.70108article
AJG 2ABDC A
Weight
0.50

Abstract

In the context of a dynamic (three‐period) general equilibrium model, this paper examines the optimal tax rates on capital savings and labor income under quasi‐hyperbolic discounting and idiosyncratic productivity shocks. In the absence of skill‐type uncertainty, we analytically show that the marginal capital tax wedges on agents' first‐period savings are negative for correcting inherent preference internalities and that these tax rates will be higher when productivity disturbances are incorporated. In the stochastic two‐type setting with exogenously‐given factor input prices, our calibrated numerical experiments find that the marginal capital wedges for both types on their period‐1 savings are positive, indicating the government's motive to relax individuals' incentive‐compatibility constraints. We also quantitatively find that the optimal tax rates for both types on their first‐ and second‐period capital savings are ceteris paribus decreasing in the degree of quasi‐hyperbolic discounting because of a stronger need to rectify negative utility internalities.

Open via your library →

Cite this paper

https://doi.org/https://doi.org/10.1111/jpet.70108

Or copy a formatted citation

@article{yunmin2026,
  title        = {{Optimal Dynamic Income Taxation Under Quasi‐Hyperbolic Discounting and Idiosyncratic Productivity Shocks}},
  author       = {Yunmin Chen & Jang‐Ting Guo},
  journal      = {Journal of Public Economic Theory},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1111/jpet.70108},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

Optimal Dynamic Income Taxation Under Quasi‐Hyperbolic Discounting and Idiosyncratic Productivity Shocks

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.