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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 of 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 independent 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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1231.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1231

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Keywords: optimal commodity taxation; Ramsey rule;

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  1. Sandmo, Agnar, 1987. "A Reinterpretation of Elasticity Formulae in Optimum Tax Theory," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 54(213), pages 89-96, February.
  2. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, Elsevier, vol. 1(1), pages 97-119, 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, Springer, vol. 9(3), pages 295-316, May.
  6. Deaton, Angus, 1979. "The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 46(3), pages 391-405, July.
  7. Michael Smart, 2002. "Reforming the Direct–Indirect Tax Mix," International Tax and Public Finance, Springer, Springer, vol. 9(2), pages 143-155, March.
  8. 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, Wiley Blackwell, vol. 53(2), pages 293-99, April.
  9. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
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Cited by:
  1. 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.
  2. Ulrich van Suntum, . "Income Taxes, Death Taxes, and Optimal Consumption-Leisure-Savings-Choice," Working Papers, Institute of Spatial and Housing Economics, Munster Universitary 200124, Institute of Spatial and Housing Economics, Munster Universitary.
  3. Yoshitomo Ogawa, 2007. "The optimal commodity tax structure in a four-good model," International Tax and Public Finance, Springer, Springer, vol. 14(6), pages 657-671, December.
  4. Homburg, Stefan, 2010. "Allgemeine Steuerlehre," EconStor Books, ZBW - German National Library of Economics, number 92547, February.

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