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A New Approach to Optimal Commodity Taxation

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  • Stefan Homburg

Abstract

This paper makes a fresh attempt at characterizing optimal commodity taxes. Under the usual assumptions, an extremely simple expression for second-best commodity taxes is derived, showing tax rates as functions of observable variables only, rather than as functions of unobservable variables such as compensated cross-elasticities. The main formula is independent of special preferences and of the number of commodities. It has a simple economic meaning and could be particularly useful for empirical research. Examples and remarks on the normalization problem are provided.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 62 (2006)
Issue (Month): 3 (September)
Pages: 323-338

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200609)62:3_323:anatoc_2.0.tx_2-n

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Keywords: optimal commodity taxation; Ramsey rule;

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References

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  1. Deaton, Angus, 1979. "The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation," Review of Economic Studies, Wiley Blackwell, vol. 46(3), pages 391-405, July.
  2. Stern, Nicholas, 1986. "A Note on Commodity Taxation: The Choice of Variable and the Slutsky, Hessian and Antonelli Matrices (SHAM)," Review of Economic Studies, Wiley Blackwell, vol. 53(2), pages 293-99, April.
  3. Alan J. Auerbach & James R. Hines Jr., 2001. "Taxation and Economic Efficiency," NBER Working Papers 8181, National Bureau of Economic Research, Inc.
  4. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. David Coady & Jean Drèze, 2002. "Commodity Taxation and Social Welfare: The Generalized Ramsey Rule," International Tax and Public Finance, Springer, vol. 9(3), pages 295-316, May.
  6. Michael Smart, 2002. "Reforming the Direct–Indirect Tax Mix," International Tax and Public Finance, Springer, vol. 9(2), pages 143-155, March.
  7. Sandmo, Agnar, 1987. "A Reinterpretation of Elasticity Formulae in Optimum Tax Theory," Economica, London School of Economics and Political Science, vol. 54(213), pages 89-96, February.
  8. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
  9. 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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Cited by:
  1. Homburg, Stefan, 2010. "Allgemeine Steuerlehre," EconStor Books, ZBW - German National Library of Economics, number 92547.
  2. Ulrich van Suntum, . "Income Taxes, Death Taxes, and Optimal Consumption-Leisure-Savings-Choice," Working Papers 200124, Institute of Spatial and Housing Economics, Munster Universitary.
  3. van Suntum, Ulrich, 2008. "Income taxes, death taxes, and optimal consumption-leisure-savings-choice," CAWM Discussion Papers 4, Center of Applied Economic Research Münster (CAWM), University of Münster.
  4. Yoshitomo Ogawa, 2007. "The optimal commodity tax structure in a four-good model," International Tax and Public Finance, Springer, vol. 14(6), pages 657-671, December.

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