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Optimal indirect taxation with a restricted number of tax rates

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Author Info

  • Pascal Belan

    (LEN - Laboratoire d'Economie de Nantes - Université de Nantes, EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - CNRS : UMR8594 - Université Paris I - Panthéon-Sorbonne)

  • Stéphane Gauthier

    (CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université de Rennes 1 - Université de Caen Basse-Normandie, CREST-INSEE - Centre de Recherche en Economie et en Statistique - Institut national de la statistique et des études économiques (INSEE))

Abstract

This paper analyzes the optimal structure of indirect taxation when the number of available tax rates is smaller than the number of taxable commodities. Such a constraint requires to choose the levels of tax rates and the groups of commodities that will be taxed at equal rates (or exempted). In a partial equilibrium framework, with a single agent and a low amount of tax collection, it is shown that the process of allocation of commodities to groups depends on both price elasticities and consumption spendings. Still, the optimal tax structure displays a weak form of the inverse elasticity rule; consumption spendings influence the size of the fiscal base, and may lead to many tax exemptions.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00106898.

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Date of creation: Aug 2006
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Publication status: Published, Journal of Public Economics, 2006, 90, 6-7, 1201-1213
Handle: RePEc:hal:cesptp:halshs-00106898

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00106898
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Related research

Keywords: Indirect taxation; Commodity grouping; Exemptions;

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References

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  1. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, Elsevier, vol. 6(4), pages 327-358, November.
  2. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 4(1), pages 157-78, Winter.
  3. 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.
  4. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 6(1-2), pages 55-75.
  5. Gordon, James P. F., 1989. "Tax reform via commodity grouping," Journal of Public Economics, Elsevier, Elsevier, vol. 39(1), pages 67-81, June.
  6. Cornia, Gary C. & Edmiston, Kelly D. & Sheffrin, Steven M. & Sexton, Terri A., 2000. "An Analysis of the Feasibility of Implementing a Single Rate Sales Tax," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 1327-50, December.
  7. Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, 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 hal-00731151, HAL.

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