Static and Dynamic Mirrleesian Taxation with Non-separable Preferences: A Unified Approach Article Swipe
I analyze dynamic Mirrlees taxation with preferences that are non-separable between con- \nsumption, leisure and type, which determines both ability and consumption needs. I show how \nto account for non-separable preferences through a simple change in probability measures. I ge- \nneralize the existing Inverse Euler Equation and optimal static labor tax formulae and provide \na unied intuition based on a set of perturbations around the optimal allocations that preserve \nexpected utility and incentive compatibility. Non-separability in preferences gives rise to a new \ntradeo between current and future redistribution that is internalized by the planner's solution \nbut not by private savings decisions. This leads to a novel rationale to subsidize (tax) savings \nand make labor taxes more (less) persistent, when more productive agents also have higher \n(lower) consumption needs.
