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A New Approach to Optimal Commodity Taxation

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Author Info
Stefan Homburg

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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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Publisher 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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Related research
Keywords: optimal commodity taxation; Ramsey rule;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421 Elsevier. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
  3. Michael Smart, 2002. "Reforming the Direct–Indirect Tax Mix," International Tax and Public Finance, Springer, vol. 9(2), pages 143-155, March. [Downloadable!] (restricted)
  4. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
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  5. Deaton, Angus, 1979. "The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation," Review of Economic Studies, Blackwell Publishing, vol. 46(3), pages 391-405, July. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Stern, Nicholas, 1986. "A Note on Commodity Taxation: The Choice of Variable and the Slutsky, Hessian and Antonelli Matrices (SHAM)," Review of Economic Studies, Blackwell Publishing, vol. 53(2), pages 293-99, April. [Downloadable!] (restricted)
  8. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!] (restricted)
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This page was last updated on 2009-12-1.

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