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Rents And The Cost And Optimal Design Of Commodity Taxes


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  • Carlo Perroni
  • John Whalley


This paper numerically investigates the significance of rents for both the welfare costs and the optimal design of commodity taxes using a general-equilibrium model calibrated to 1986 Canadian data. In the data we use, Ricardian rents are concentrated in agriculture and utilities, with market structure rents concentrated in manufacturing. Different types of rents have different implications for the welfare cost of taxes, and hence also for appropriate tax design. Ricardian rents lower the cost of taxes; rents supported by imperfect competition (with no free entry) raise the cost of taxes; rents supported by regulation generate rent-seeking costs, and if taxed improve resource allocation. Model results show a markedly nonuniform optimal tax structure, and a substantial influence of the treatment of rents on the pattern of optimal tax rates by commodity. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 80 (1998)
Issue (Month): 3 (August)
Pages: 357-364

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Handle: RePEc:tpr:restat:v:80:y:1998:i:3:p:357-364

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  1. repec:ltr:wpaper:2010.02 is not listed on IDEAS
  2. Ian W. H. Parry, 2003. "Fiscal Interactions and the Case for Carbon Taxes Over Grandfathered Carbon Permits," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 19(3), pages 385-399.
  3. Iain Fraser & Robert Waschik, 2010. "The Double Dividend Hypothesis in a CGE Model: Specific Factors and Variable Labour Supply," Studies in Economics, Department of Economics, University of Kent 1001, Department of Economics, University of Kent.
  4. Bento, Antonio M. & Jacobsen, Mark, 2007. "Ricardian rents, environmental policy and the `double-dividend' hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 17-31, January.
  5. Parry, Ian, 2000. "Comparing the Marginal Excess Burden of Labor, Gasoline, Cigarette and Alcohol Taxes: An Application to the United Kingdom," Discussion Papers, Resources For the Future dp-00-33-rev, Resources For the Future.
  6. Gersovitz, Mark, 2010. "Taxation of profits when there are profits," Economics Letters, Elsevier, Elsevier, vol. 107(2), pages 145-147, May.


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