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The Desirability of Commodity Taxation under Non-Linear Income Taxation and Heterogeneous Tastes

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  • Emmanuel Saez

Abstract

This paper revisits the Atkinson-Stiglitz result on uselessness of commodity taxation in the presence of optimal non-linear income taxation in a more general setup, namely when tastes are heterogeneous. This general analysis displays the key economic assumptions under which the Atkinson-Stiglitz result is robust. A small tax on a given commodity is desirable if high income earners have a relatively higher taste for this commodity or if consumption of this commodity increases with leisure. An application to the case of savings suggests that, even in the presence of optimal non-linear earnings taxation, there is a role for a supplemental capital income tax in the standard overlapping generation model.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8029.

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Date of creation: Dec 2000
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Publication status: published as Saez, Emmanuel. "The Desirability Of Commodity Taxation Under Non-Linear Income Taxation And Heterogeneous Tastes," Journal of Public Economics, 2002, v83(2,Feb), 217-230.
Handle: RePEc:nbr:nberwo:8029

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  1. 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.
  2. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, Elsevier, vol. 71(2), pages 165-188, February.
  3. William N. Evans & Jeanne S. Ringel & Diana Stech, 1999. "Tobacco Taxes and Public Policy to Discourage Smoking," NBER Chapters, National Bureau of Economic Research, Inc, in: Tax Policy and the Economy, volume 13, pages 1-56 National Bureau of Economic Research, Inc.
  4. Konishi, Hideo, 1995. "A Pareto-improving commodity tax reform under a smooth nonlinear income tax," Journal of Public Economics, Elsevier, Elsevier, vol. 56(3), pages 413-446, March.
  5. Ordover, J. A. & Phelps, E. S., 1979. "The concept of optimal taxation in the overlapping-generations model of capital and wealth," Journal of Public Economics, Elsevier, Elsevier, vol. 12(1), pages 1-26, August.
  6. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, Elsevier, vol. 7(2), pages 203-235, April.
  7. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, Elsevier, vol. 6(4), pages 327-358, November.
  8. CREMER, Helmuth & PESTIEAU , Pierre & ROCHET, Jean-Charles, . "Direct versus indirect taxation: the design of the tax structure revisited," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1528, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(1), pages 54-77, February.
  10. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  11. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(1), pages 205-29, January.
  12. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, Elsevier, vol. 24(2), pages 195-220, July.
  13. Deaton, Angus & Stern, Nicholas, 1986. "Optimally uniform commodity taxes, taste differences and lump-sum grants," Economics Letters, Elsevier, Elsevier, vol. 20(3), pages 263-266.
  14. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  15. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(4), pages 637-43, October.
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  1. Series on tax: Part 5 – A primer on consumption tax
    by Matt Nolan in TVHE on 2013-06-27 20:00:04
  2. Series on tax: Part 5 – A primer on consumption tax
    by Matt Nolan in The Invisible Hand in Economics on 2013-06-27 20:00:04
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