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Optimal tax mix with merit goods

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  • RACIONERO, Maria del Mar

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

This paper deals with optimal taxation in a two-class economy with two private commodities and labour. We derive optimal nonlinear income and linear commodity taxes in the presence of merit goods. We formulate merit good arguments via a pathology of individual choice. We assume weak separability between consumption and leisure and show that the standard optimal tax results are modified due to merit good considerations. We first find a subsidy on the merit good. Secondly, optimal income marginal tax rates are also shown to dioeer from the standard literature: it is positive on high-ability individuals and on low-ability individuals it is ambiguous because of a dampening eoeect due to merit good considerations. Finally, we derive the effective marginal tax rates

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1998004.

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Date of creation: 01 Jan 1998
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Handle: RePEc:cor:louvco:1998004

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Related research

Keywords: Merit goods; Non-linear income taxation;

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  1. Sandmo, Agnar, 1983. "Ex Post Welfare Economics and the Theory of Merit Goods," Economica, London School of Economics and Political Science, vol. 50(197), pages 19-33, February.
  2. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
  3. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
  4. Mirrless, J. A., 1975. "Optimal commodity taxation in a two-class economy," Journal of Public Economics, Elsevier, vol. 4(1), pages 27-33, February.
  5. Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January.
  6. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  7. Pazner, Elisha A, 1972. "Merit Wants and the Theory of Taxation," Public Finance = Finances publiques, , vol. 27(4), pages 460-72.
  8. Besley, Timothy, 1988. "A simple model for merit good arguments," Journal of Public Economics, Elsevier, vol. 35(3), pages 371-383, April.
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Cited by:
  1. Blomquist, Sören & Micheletto, Luca, 2005. "Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ," Working Paper Series 2005:7, Uppsala University, Department of Economics.
  2. Jukka Pirttilä & Sanna Tenhunen, 2005. "Pawns and Queens Revisited: Public Provision of Private Goods when Individuals make Mistakes," CESifo Working Paper Series 1466, CESifo Group Munich.
  3. Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2004. "Non-Welfarist Optimal Taxation and Behavioral Public Economics," CESifo Working Paper Series 1291, CESifo Group Munich.
  4. B. Defloor, 2010. "Marginal Cost of Indirect Taxation in the presence of a Demerit Externality with an Application to Carbon Dioxide Emissions in Belgium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/656, Ghent University, Faculty of Economics and Business Administration.
  5. Elodie Brahic & Valérie Clément & Nathalie Moureau & Marion Vidal, 2008. "A la recherche des Merit Goods," Working Papers 08-08, LAMETA, Universtiy of Montpellier, revised Jun 2008.

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