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Some Marginalist Intuition Concerning the Optimal Commodity Tax Problem

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Author Info
Craig Brett () (Canada Research Chair in Canadian Public Policy, Department of Economics, Mount Allison University, Sackville, New Brunswick)

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Abstract

The author offers a simple intuition that can be exploited to derive and to help interpret some canonical results in the theory of optimal commodity taxation. He develops and explores the principle that the marginal social welfare loss per last unit of tax revenue generated be equalized across tax instruments. A simple two-consumer, two-taxed-commodity economy is used to explore how this intuition can be used to derive the famous inverse elasticity rule, as well as the modifications and extensions needed to account for the redistributive effects of commodity taxes.

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Publisher Info
Article provided by Helen Dwight Reid Foundation in its journal The Journal of Economic Education.

Volume (Year): 37 (2006)
Issue (Month): 4 ()
Pages: 459-469
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Handle: RePEc:jee:journl:v:37:y:2006:i:4:p:459-469

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Related research
Keywords: commodity taxes; inverse elasticity rule; marginal social welfare loss;

Find related papers by JEL classification:
A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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This page was last updated on 2009-11-25.

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