Dynamic corrective taxes with time-varying salience
Payne Institute Faculty Fellow Ben Gilbert and Joshua Zivin write about economies across the globe that are becoming increasingly cashless and many payment systems have become automated, driving a temporal wedge between consumption and payment and generally making the costs of consumption intermittently salient. Since this inconsistent price salience alters demand elasticities, it is a particular concern for goods that generate externalities and the price-based policies deployed to address them. This paper derives optimal dynamic corrective taxes for suboptimal and persistent consumption decisions. These taxes depend on the agent’s ability to commit to a future consumption path. July 15, 2020.