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Optimal Commodity Grouping in a Partial Equilibrium Framework

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  • Pascal Belan

    (Crest)

  • Stéphane Gauthier

    (Crest)

Abstract

The literature on indirect taxation is usually concerned with the casewhere the number of possible di¤erent tax rates equals the number of commodities.The purpose of this paper is to characterize, in a partial equilibrium framework,which commodities should be taxed at the same rate whenever there is only onepossible tax rate. It is shown that if all the consumers are endowed with thesame weight by the social planner, i.e., in the representative agent con…guration,then necessities should be taxed while luxuries should be exempted from taxation.In the many-person con…guration, where di¤erent individuals have di¤erent socialweights, only one commodity should be taxed; it is the one that is mainly consumedby households with low social weights.

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Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2003-28.

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Date of creation: 2003
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Handle: RePEc:crs:wpaper:2003-28

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  1. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
  2. Gordon, James P. F., 1989. "Tax reform via commodity grouping," Journal of Public Economics, Elsevier, vol. 39(1), pages 67-81, June.
  3. Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, vol. 69(3), pages 475-80, June.
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Cited by:
  1. Pascal Belan & Stéphane Gauthier & Guy Laroque, 2008. "Optimal grouping of commodities for indirect taxation," Post-Print hal-00731151, HAL.

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