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

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Emmanuel Saez

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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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Handle: RePEc:nbr:nberwo:8029

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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  1. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February. [Downloadable!] (restricted)
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  4. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
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  5. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July. [Downloadable!] (restricted)
  6. 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, vol. 71(2), pages 165-188, February. [Downloadable!] (restricted)
  7. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April. [Downloadable!] (restricted)
  8. Seade, Jesus, 1982. "On the Sign of the Optimum Marginal Income Tax," Review of Economic Studies, Blackwell Publishing, vol. 49(4), pages 637-43, October. [Downloadable!] (restricted)
  9. William N. Evans & Jeanne S. Ringel & Diana Stech, 1999. "Tobacco Taxes and Public Policy to Discourage Smoking," NBER Chapters, in: Tax Policy and the Economy, volume 13, pages 1-56 National Bureau of Economic Research, Inc. [Downloadable!]
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  11. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March. [Downloadable!] (restricted)
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  12. Emmanuel Saez, 2000. "Using Elasticities to Derive Optimal Income Tax Rates," NBER Working Papers 7628, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. 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, vol. 12(1), pages 1-26, August. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Louis Kaplow, 2004. "On the Undesirability of Commodity Taxation Even When Income Taxation is Not Optimal," NBER Working Papers 10407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Johann K. Brunner, 2003. "Optimale direkte und indirekte Steuern bei unterschiedlicher Anfangsausstattung," Economics working papers 2003-10, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
  3. Peter Diamond, 2009. "Taxes and Pensions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Roger Gordon, 2004. "Taxation of Interest Income," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 5-15, January. [Downloadable!] (restricted)
    Other versions:
  5. Hisahiro Naito, 2003. "Endogenous Human Capital Accumulation, Comparative Advantage and Direct vs. Indirect Redistribution," ISER Discussion Paper 0590, Institute of Social and Economic Research, Osaka University. [Downloadable!]
    Other versions:
  6. Claus Thustrup Kreiner & Nicolaj Verdelin, 2009. "Optimal Provision of Public Goods: A Synthesis," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  7. Parry, Ian W.H. & Laxminarayan, Ramanan & West, Sarah E., 2006. "Fiscal and Externality Rationales for Alcohol Taxes," Discussion Papers dp-06-51, Resources For the Future. [Downloadable!]
  8. Blumkin, Tomer & Ruffle , Bradley J. & Ganun , Yosef, 2007. "Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods," MPRA Paper 6479, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  9. Roger Gordon & Wei Li, 2005. "Puzzling Tax Structures in Developing Countries: A Comparison of Two Alternative Explanations," NBER Working Papers 11661, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Louis Kaplow, 2008. "Optimal Policy with Heterogeneous Preferences," NBER Working Papers 14170, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Peter Birch Sørensen, 2006. "The Theory of Optimal Taxation: What is the Policy Relevance?," EPRU Working Paper Series 06-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  12. Louis Kaplow, 2006. "Optimal Control of Externalities in the Presence of Income Taxation," NBER Working Papers 12339, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Vidar Christiansen & Matti Tuomala, 2008. "On taxing capital income with income shifting," International Tax and Public Finance, Springer, vol. 15(4), pages 527-545, August. [Downloadable!] (restricted)
  14. David Y. Albouy, 2008. "The Unequal Geographic Burden of Federal Taxation," NBER Working Papers 13995, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Peter A. Diamond & Johannes Spinnewijn, 2009. "Capital Income Taxes with Heterogeneous Discount Rates," NBER Working Papers 15115, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Charles E. McLure, Jr. & George R. Zodrow, 2006. "Consumption-Based Direct Taxes: A Guided Tour of the Amusement Park," International Studies Program Working Paper Series, at AYSPS, GSU paper0635, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
    Other versions:
  17. Canegrati, Emanuele, 2007. "A Contribution to the Positive Theory of Indirect Taxation," MPRA Paper 6116, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  18. Peter Diamond & Johannes Spinnewijn, . "Capital Income Taxes With Heterogeneous Discount Rates," Working Papers, Center for Retirement Research at Boston College wp2009-14, Center for Retirement Research. [Downloadable!]
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