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Optimal Taxation in Life-Cycle Economies in the Presence of Commitment and Temptation Problems

Inheritance tax

Cagri S. Kumru and Saran Sarntisart

Self-control problem is an important determinant of individuals' economic decisions. The decision maker's future utility is affected by unwanted temptation. This implies that implications of various government policies would differ if one incorporates these behavioural aspects. Public finance instruments could, however, be used to correct anomalies created by temptation. The purpose of this paper is to examine the question of optimal taxation when individuals have self-control problems.

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