Taxing a Commodity With and Without Revenue Neutrality: An Exploration Using a Calibrated Theoretical Consumer Equilibrium Model
AbstractIt has long been recognized that taxing a commodity that generates negative externalities can be used to reduce the consumption of that commodity. A variant involves the imposition of revenue neutrality but that may alter the tax rate required to meet a consumption reduction target. We explore the relationships among the commodity tax rate, the demand and supply elasticities, and the revenue offsets by calibrating a theoretical consumer equilibrium model and then recalibrating it with alternative parameter configurations. For each configuration we simulate equilibrium for three policy scenarios: no neutrality, neutrality achieved by subsidizing other commodities, and neutrality achieved by income transfer.
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Bibliographic InfoPaper provided by McMaster University in its series Quantitative Studies in Economics and Population Research Reports with number 445.
Length: 24 pages
Date of creation: May 2011
Date of revision:
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Consumer Market Equilibrium; Commodity Taxation; Revenue Neutrality;
Find related papers by JEL classification:
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-01 (All new papers)
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