Lastly, for individuals, the taxation of savings affects the decision on savings and when to allocate their assets. This system of taxation has a lot of impacts to the communities involved and has numerous recommendations.
Generally, the whole issue is tied on people’s general saving behavior. Every time a taxation system surfaces people tend to adjust their saving behaviors. This is just normal because taxes play an important role is asset finance. Widely, we tend to save less when our incomes are low and needs are high (Buguignon 2005, 39). Therefore to save one cannot rely on an income to save. We save or run down our existing wealth when the amount for consumption differs from the amount of income they receive in a particular time period.
The present paper addresses precisely these issues and suggests a normative framework to analyze tax policy in which social preferences are concerned by individual utilities instead of the ambiguous concept of ‘household welfare’. Individual level data are rare and even more difficult is the measure of individual welfare so that we resort to the use of a structural multi-utility model with minimalist assumptions regarding preferences. Moreover, social evaluation of welfare - at individual or household level – requires the formal framework of the optimal taxation theory. This way, the paper suggests one of the very first attempts to reconcile two branches of the economic literature which are usually dissociated. On the one hand, we benefit from the collective model of labor supply (Chiappori, 1988, 12) which acknowledges explicitly the presence in the household of several deciders whose preferences may differ. The decision making process - the incentive constraint of the social planner - relies on the sole Assumption that household decisions are Pareto-efficient. This setting allows