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Is commodity taxation unfair?

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  • Fleurbaey, Marc

Abstract

In a model where agents have unequal skills and heterogeneous preferences about consumption goods and leisure, this paper studies how to combine linear commodity taxes and non-linear income tax. It proposes a particular social welfare function on the basis of fairness principles. It then derives a simple criterion for evaluating the social welfare consequences of various tax schedules. Under the proposed approach, the optimal tax should have no commodity tax for some range of consumptions, and income redistribution would feature high subsidies to the working poor. It is also shown that, even when the income tax fails to be optimal, commodity taxes may not improve social welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 90 (2006)
Issue (Month): 10-11 (November)
Pages: 1765-1787

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:10-11:p:1765-1787

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Web page: http://www.elsevier.com/locate/inca/505578

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References

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  1. Christiansen, Vidar, 1981. "Evaluation of Public Projects under Optimal Taxation," Review of Economic Studies, Wiley Blackwell, vol. 48(3), pages 447-57, July.
  2. Sören Blomquist & Vidar Christiansen, 2004. "Taxation and Heterogeneous Preferences," CESifo Working Paper Series 1244, CESifo Group Munich.
  3. MANIQUET, François & SPRUMONT, Yves, . "Fair production and allocation of an excludable nonrival good," CORE Discussion Papers RP -1735, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Guy Laroque, 2004. "Indirect Taxation is Superfluous under Separability and Taste Homogeneity : A Simple Proof," Working Papers 2004-23, Centre de Recherche en Economie et Statistique.
  5. Marc Fleurbaey & Fran�ois Maniquet, 2006. "Fair Income Tax," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 55-83.
  6. FLEURBAEY, Marc & MANIQUET, François, . "Help the low skilled or let the hardworking thrive? A study of fairness in optimal income taxation," CORE Discussion Papers RP -1970, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Robin Boadway & Maurice Marchand & Pierre Pestieau & María del Mar Racionero, 2002. "Optimal Redistribution with Heterogeneous Preferences for Leisure," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 475-498, October.
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Citations

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Cited by:
  1. Alan Krause, 2007. "A Tax Reform Analysis of the Laffer Argument," Discussion Papers 07/10, Department of Economics, University of York.
  2. Valletta Giacomo, 2012. "Health, Fairness and Taxation," Research Memorandum 017, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  3. Juan D. Moreno-Ternero, 2010. "Voting over piece-wise linear tax methods," Working Papers 2010-01, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
  4. Alan Krause, 2009. "A general equilibrium analysis of the Laffer argument," Social Choice and Welfare, Springer, vol. 33(4), pages 601-615, November.
  5. Louis Kaplow, 2008. "Optimal Policy with Heterogeneous Preferences," NBER Working Papers 14170, National Bureau of Economic Research, Inc.

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