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Some Implications of Quality Differentials for Optimal Taxation

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  • Myles, Gareth D

Abstract

It is shown that in models where quality choice acts as a signal of income level, utilitari an tax schemes will tend toward the subsidization of high quality and hence exaggerate inequalities. This effect is attributable to the no n-concavity of the indirect utility function caused by the existence of the quality differentiated product. The implication for income tax is that the optimal linear schedule may have a negative marginal rat e. Copyright 1987 by Royal Economic Society.

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  • Myles, Gareth D, 1987. "Some Implications of Quality Differentials for Optimal Taxation," Economic Journal, Royal Economic Society, vol. 98(390), pages 148-160, Supplemen.
    • Handle: RePEc:ecj:econjl:v:98:y:1987:i:390:p:148-60
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    Cited by:

    1. Michael Keen, 1998. "The balance between specific and ad valorem taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 19(1), pages 1-37, February.

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