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A Reinterpretation of Elasticity Formulae in Optimum Tax Theory

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  • Sandmo, Agnar
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    Abstract

    This paper presents a unified interpretation of three special cases which have been widely discussed in the theory of optimum taxation. These are the Corlett-Hague case and two versions of the inverse elasticity rule, derived on the assumption that either the compensated or the uncompensated cross elasticities of demand are zero. It is demonstrated that all three cases imply that it is the compensated elasticities which determine efficient tax differentiation, and that complementarity with the untaxed numeraire, emphasized by W. J. Corlett and D. C. Hague (1953-54), plays a role in the interpretation of all three cases. Copyright 1987 by The Review of Economic Studies Limited.

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    Bibliographic Info

    Article provided by London School of Economics and Political Science in its journal Economica.

    Volume (Year): 54 (1987)
    Issue (Month): 213 (February)
    Pages: 89-96

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    Handle: RePEc:bla:econom:v:54:y:1987:i:213:p:89-96

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    Cited by:
    1. Martin Werding, 2008. "Survivor Benefits and the Gender-Related Tax Differential in Public Pension Schemes: Observations from Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(1), pages 110-134, February.
    2. Ed Westerhout & Kees Folmer, 2007. "Co-payment systems in health care; between moral hazard and risk reduction," CPB Discussion Paper 78, CPB Netherlands Bureau for Economic Policy Analysis.
    3. David Coady & Jean Drèze, 2002. "Commodity Taxation and Social Welfare: The Generalized Ramsey Rule," International Tax and Public Finance, Springer, vol. 9(3), pages 295-316, May.
    4. Martin Werding, 2005. "Survivor Benefits and the Gender Tax-Gap inPublic Pension SchemesWork Incentives and Options for Reform," Ifo Working Paper Series Ifo Working Paper No. 7, Ifo Institute for Economic Research at the University of Munich.
    5. Jean Lim & Carolina Rodríguez-Zamora, 2010. "The Optimal Tax Rule in the Presence of Time Use," Working Papers 2010-05, Banco de México.
    6. Martin Werding, 2005. "Survivor Benefits and the Gender Tax Gap in Public Pension Schemes: Observations from Germany," CESifo Working Paper Series 1596, CESifo Group Munich.
    7. Jean Dreze & David Coady, 2010. "Commodity Taxation and Social Welfare : The Generalised Ramsey Rule," Working Papers id:2936, eSocialSciences.
    8. Bjørn Sandvik, 2003. "Optimal Taxation and Normalisations," CESifo Working Paper Series 1025, CESifo Group Munich.
    9. Robert Fenge & Silke Uebelmesser & Martin Werding, 2002. "Second-best Properties of Implicit Social Security Taxes: Theory and Empirical Evidence," CESifo Working Paper Series 743, CESifo Group Munich.
    10. Wrede, Matthias, 1998. "Pareto efficiency of the pay-as-you-go pension system in a three-period-OLG model," BERG Working Paper Series 27, Bamberg University, Bamberg Economic Research Group.
    11. Homburg, Stefan, 2004. "A New Approach to Optimal Commodity Taxation," Hannover Economic Papers (HEP) dp-299, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

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