Optimal Taxation with Consumption Time as a Leisure or Labor Substitute

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Optimal Taxation with Consumption Time as a Leisure or Labor Substitute

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Robin Boadway () (Queen's University)
Firouz Gahvari () (University of Illinois)

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Abstract

This paper studies the optimal commodity taxation problem when time taken in consumption is a perfect substitute for either labor or leisure. It shows that while labor substitutability affects the optimal tax structure, leisure substitutability leaves the classical optimal tax results intact. In the Ramsey tax framework with linear income taxes, whether the consumers have the same or different earning abilities, labor substitutes tend to be taxed at a higher rate than leisure substitutes with the tax differential being increasing in consumption time. This is not necessarily the case when one allows for nonlinear income taxation.

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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1068.

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Length: 41 pages
Date of creation: Jan 2006
Date of revision:
Publication status: Forthcoming in Journal of Public Economics
Handle: RePEc:qed:wpaper:1068

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Article
- Boadway, Robin & Gahvari, Firouz, 2006. "Optimal taxation with consumption time as a leisure or labor substitute," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1851-1878, November. [Downloadable!] (restricted)

Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-06-03 (All new papers)
NEP-PBE-2006-06-03 (Public Economics)
NEP-PUB-2006-06-03 (Public Finance)

References listed on IDEAS
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.:

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Other versions:
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Other versions:
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Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
Bergstrom, Ted & Blomquist, Soren, 1996. "The political economy of subsidized day care," European Journal of Political Economy, Elsevier, vol. 12(3), pages 443-457, November. [Downloadable!] (restricted)
Other versions:
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- Bergstrom, T. & Blomquist, S., 1993. "The Political Economy of Subsidized Day Care," Papers 93-30, Michigan - Center for Research on Economic & Social Theory.
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Kleven, Henrik Jacobsen, 2004. "Optimum taxation and the allocation of time," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 545-557, March. [Downloadable!] (restricted)
Firouz Gahvari, 2007. "On Optimal Commodity Taxes When Consumption Is Time Consuming," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(1), pages 1-27, 02. [Downloadable!] (restricted)
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Kleven, Henrik Jacobsen & Richter, Wolfram F & Sorensen, Peter Birch, 2000. "Optimal Taxation with Household Production," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 584-94, July.
Other versions:
- Henrik Jacobsen Kleven & Wolfram F. Richter & Peter Birch Sørensen, . "Optimal Taxation with Household Production," EPRU Working Paper Series 99-12, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]

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Cited by:
(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.)

Peter Sørensen, 2007. "The theory of optimal taxation: what is the policy relevance?," International Tax and Public Finance, Springer, vol. 14(4), pages 383-406, August. [Downloadable!] (restricted)

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