Beschreibung:
This paper investigates how price misperceptions, which are pervasive and mainly ascribed to a complex system of mixed tax schedule, affect the design of optimal tax rules. Our theoretical results show that in the presence of price misperceptions indirect taxation exerts both a corrective role and a redistributive role even with the preference structure of Atkinson and Stiglitz (1976). This makes the linear commodity taxation no longer superfluous. In particular, the optimal income tax schedule can be more progressive if perceived marginal income tax rates are influenced by commodity prices. Moreover, taking income tax credit for electric vehicles as an example we simulate the optimal subsidy rate and income tax schedule numerically when price misperceptions are considered in the design of optimal mixed taxation. Compared with conventional optimal mixed taxation, optimal taxation in our model results in a rise in welfare by 8.79% to 36.34% under plausible values of labor supply elasticity