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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 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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  • Fleurbaey, Marc, 2006. "Is commodity taxation unfair?," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1765-1787, November.
    • Handle: RePEc:eee:pubeco:v:90:y:2006:i:10-11:p:1765-1787
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    Cited by:

    1. Moreno-Ternero, Juan D., 2011. "Voting over piece-wise linear tax methods," Journal of Mathematical Economics, Elsevier, vol. 47(1), pages 29-36, January.
    2. Louis Kaplow, 2008. "Optimal Policy with Heterogeneous Preferences," NBER Working Papers 14170, National Bureau of Economic Research, Inc.
    3. Pertti Haaparanta & Ravi Kanbur & Tuuli Paukkeri & Jukka Pirttilä & Matti Tuomala, 2022. "Promoting education under distortionary taxation: equality of opportunity versus welfarism," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(2), pages 281-297, June.
    4. Valletta, G., 2012. "Health, fairness and taxation," Research Memorandum 017, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    5. Alan Krause, 2009. "A general equilibrium analysis of the Laffer argument," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 33(4), pages 601-615, November.
    6. Sören Blomquist & Vidar Christiansen, 2008. "Taxation and Heterogeneous Preferences," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(2), pages 218-244, June.
    7. Joong-Ho Kook & Seok Gyu Choi, 2022. "A Comparative Study of Household Consumption Patterns and Optimal Commodity Tax Rates between Korea and Japan," Korean Economic Review, Korean Economic Association, vol. 38, pages 479-507.
    8. Giacomo Valletta, 2014. "Health, fairness and taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(1), pages 101-140, June.
    9. Alan Krause, 2012. "Nonlinear Income Tax Reforms," Discussion Papers 12/03, Department of Economics, University of York.
    10. VALLETTA, Giacomo, 2012. "Health, fairness and taxation," LIDAM Discussion Papers CORE 2012016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Fleurbaey, Marc & Maniquet, François, 2015. "Optimal taxation theory and principles of fairness," LIDAM Discussion Papers CORE 2015005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Alan Krause, 2007. "A Tax Reform Analysis of the Laffer Argument," Discussion Papers 07/10, Department of Economics, University of York.
    13. Alain Babatounde & Bart Capeau & Romain Houssa, 2023. "Welfare effects of indirect tax policies in West Africa," DeFiPP Working Papers 2301, University of Namur, Development Finance and Public Policies.
    14. Marc Fleurbaey & Giacomo Valletta, 2018. "Fair optimal tax with endogenous productivities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(6), pages 849-873, December.
    15. Alan Krause, 2014. "Piecewise Linear Income Tax Reforms," Discussion Papers 14/25, Department of Economics, University of York.

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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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