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Household Production and the Design of the Tax Structure

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  • Dan Anderberg
  • Alessandro Balestrino

Abstract

This paper amalgamates two topical issues in the economics ofcommodity taxation: the general case for non-uniformity, andthe tax treatment of commodities that are either inputs to householdproduction or close substitutes for household produced goods.Assuming a redistributive objective and that the government canimplement a non-linear income tax system and linear commoditytaxes we investigate if the existence of household productiongenerates a natural case for non-uniform commodity taxation.Four main results are reported. First, when the set of commoditiesis partitioned into consumption goods and input goods, and commoditytaxes are restricted to being within-group uniform, the compositecommodity theorem can be used to characterize the optimal commoditytaxes. Secondly, sufficient conditions for within-group uniformcommodity taxes to be fully optimal are derived. Thirdly, weargue that an input good should be taxed at a higher rate thangeneral consumption if and only if the degree of complementarityin household production (between the input good and a time-input)is larger than the degree of complementarity in consumption (betweengeneral consumption and the household produced good). Finally,we show that under simple normality, a market substitute forthe household-produced good should be taxed at a lower rate thangeneral consumption. The intuition for the last two results isthat the suggested pattern of taxation discourages ``do-it-yourself''behaviour, which relaxes the self-selection problem. Copyright Kluwer Academic Publishers 2000

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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 7 (2000)
Issue (Month): 4 (August)
Pages: 563-584

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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:4:p:563-584

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: indirect taxation; household production; self-selection;

References

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  1. Kolm, Ann-Sofie, 1998. "Labour Taxation in a Unionised Economy with Home Production," Working Paper Series 1998:7, Uppsala University, Department of Economics.
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  4. Niels Fredriksen & Peter Hansen & Henrik Jacobsen & Peter Sørensen, 1995. "Subsidising consumer services: effects on employment, welfare and the informal economy," Fiscal Studies, Institute for Fiscal Studies, vol. 16(2), pages 71-93, May.
  5. Aled ab Iorwerth & John Whalley, 2002. "Efficiency considerations and the exemption of food from sales and value added taxes," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 166-182, February.
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  11. Ray, R., 1996. "Issues in the Design and Reform of Commodity Taxes: Analytical Results and Empirical Evidence," Papers 1996-02, Tasmania - Department of Economics.
  12. Lindbeck, Assar & Nandakumar, Parameswar, 1990. "Public Spending and Private Services: Macroeconomic Aspects," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 620-34, July.
  13. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
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  15. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
  16. Kleven, Henrik Jacobsen & Richter, Wolfram F & Sorensen, Peter Birch, 2000. "Optimal Taxation with Household Production," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 584-94, July.
  17. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Strand,J., 2000. "Tax distortions, household production and black-market work," Memorandum 35/2000, Oslo University, Department of Economics.
  2. Jon Strand, 2002. "Effects of Progressive Taxes under Decentralized Bargaining and Heterogeneous Labor," International Tax and Public Finance, Springer, vol. 9(2), pages 195-210, March.
  3. Javier Ferri & María Luisa Moltó & Ezequiel Uriel, . "Time use, computable general equilibrium and tax policy analysis," Studies on the Spanish Economy 202, FEDEA.
  4. Alessandro Balestrino & Alessandro Cigno & Anna Pettini, 2002. "Endogenous Fertility and the Design of Family Taxation," International Tax and Public Finance, Springer, vol. 9(2), pages 175-193, March.
  5. Francesca Carta, 2013. "Investing in the youngest: the optimal child care policy," Questioni di Economia e Finanza (Occasional Papers) 180, Bank of Italy, Economic Research and International Relations Area.

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