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Redistribution and optimal mixed taxation in the presence of consumption externalities

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  • Micheletto, Luca

Abstract

The literature on externalities and optimal redistributive taxation in the presence of asymmetric information has so far been confined to the case where externalities are of the "atmospheric" type. One of the main results from this literature has been that the so called additivity property discovered by Sandmo [Sandmo, A. 1975. Optimal taxation in the presence of externalities. Swedish Journal of Economics 77, 86-98] holds true also in this more general context. This paper extends previous analyses by considering a general model where, even if there is only one externality-generating good, the externality is not constrained to be of the atmospheric type. The model is sufficiently unrestrictive to admit a variety of interpretations. For example, it is possible to interpret it as reflecting the case of different types of agents being differently vulnerable to the same externality. Another possibility is to view agents of different types as not equally effective as externality-generating units. Yet another interpretation can be in terms of positional goods. We show that while the additivity property fails in general to hold, conditions can be derived which are sufficient to recover it both with respect to the commodity tax structure and with respect to the shape of the income tax schedule. Moreover, stressing one or the other of the aforementioned interpretations delivers different results for the validity of the additivity property.

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Bibliographic Info

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

Volume (Year): 92 (2008)
Issue (Month): 10-11 (October)
Pages: 2262-2274

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:10-11:p:2262-2274

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

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Keywords: Optimal taxation Externalities Additivity property;

References

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  1. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Louis Kaplow, 2004. "On the Undesirability of Commodity Taxation Even When Income Taxation is Not Optimal," NBER Working Papers 10407, National Bureau of Economic Research, Inc.
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  5. Kopczuk, Wojciech, 2003. "A note on optimal taxation in the presence of externalities," Economics Letters, Elsevier, vol. 80(1), pages 81-86, July.
  6. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 405-421, March.
  7. Thomas Aronsson, 2005. "Environmental Policy, Efficient Taxation and Unemployment," International Tax and Public Finance, Springer, vol. 12(2), pages 131-144, March.
  8. Sara J. Solnick & David Hemenway, 2005. "Are Positional Concerns Stronger in Some Domains than in Others?," American Economic Review, American Economic Association, vol. 95(2), pages 147-151, May.
  9. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
  10. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
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Citations

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Cited by:
  1. Paul Eckerstorfer, 2011. "Relative Consumption Concerns and the Optimal Tax Mix," NRN working papers 2011-12, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  2. Paul Eckerstorfer, 2011. "Optimal redistributive taxation in a multi-externality model," NRN working papers 2011-07, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  3. Paul Eckerstorfer & Ronald Wendner, 2013. "Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation," Economics working papers 2013-01, Department of Economics, Johannes Kepler University Linz, Austria.
  4. Micheletto, Luca, 2009. "Optimal nonlinear redistributive taxation and public good provision in an economy with Veblen effects," Working Paper Series 2009:3, Uppsala University, Department of Economics.
  5. Alessandro Balestrino, 2012. "Taxes, Status Goods, and Piracy," CESifo Working Paper Series 3704, CESifo Group Munich.
  6. Earl L. Grinols & Peri Silva, 2012. "Intervention Efficiency, Incentive Symmetry, and Information," Development Working Papers 334, Centro Studi Luca d\'Agliano, University of Milano, revised 16 Jul 2012.
  7. Bas Jacobs & Ruud A. de Mooij, 2011. "Pigou Meets Mirrlees: On the Irrelevance of Tax Distortions for the Second-Best Pigouvian Tax," CESifo Working Paper Series 3342, CESifo Group Munich.
  8. Květa Kubátová, 2009. "Optimal Taxation – Review of Theory," Český finanční a účetní časopis, University of Economics, Prague, vol. 2009(3), pages 24-36.
  9. Wojciech Kopczuk, 2012. "Taxation of Intergenerational Transfers and Wealth," NBER Working Papers 18584, National Bureau of Economic Research, Inc.
  10. Thomas Aronsson & Olof Johansson-Stenman, 2013. "Veblen’s theory of the leisure class revisited: implications for optimal income taxation," Social Choice and Welfare, Springer, vol. 41(3), pages 551-578, September.
  11. Koenig, Tobias & Lausen, Tobias, 2013. "Relative Consumption, Optimal Taxation and Public Provision of Private Goods," Hannover Economic Papers (HEP) dp-510, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

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