Indirect Taxes for Redistribution: Should Necessity Goods be Favored?
AbstractAtkinson and Stiglitz show that with weakly separability, differential commodity taxes are unnecessary given an optimal nonlinear income tax. Deaton showed that with an optimal linear progressive income tax, commodity taxes are superfluous under weakly separable and linear Engel curves. Using the latter case as an example, we derive two main results. If the income tax is less progressive than optimal, necessities should bear a lower tax rate than luxuries. If low-income households are income-constrained so cannot afford luxuries, it may be optimal to tax necessities at higher rates than luxuries, depending whether labor varies along the intensive or extensive margin.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3667.
Date of creation: 2011
Date of revision:
optimal income tax; Atkinson-Stiglitz Theorem; indirect taxes;
Other versions of this item:
- BOADWAY, Robin & PESTIEAU, Pierre, 2011. "Indirect taxes for redistribution: should necessity goods be favored?," CORE Discussion Papers 2011066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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- Bas Jacobs, 2010.
"The Marginal Cost of Public Funds is One,"
CESifo Working Paper Series
3250, CESifo Group Munich.
- Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 297-302, July.
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