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Optimal Commodity Taxation When Households Earn Multiple Incomes

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  • Kevin Spiritus

    (Erasmus University Rotterdam)

Abstract

I characterize the optimal linear commodity taxes when households differ in multiple characteristics and earn multiple incomes, in presence of an optimal non-linear tax schedule on the households’ labour incomes. The government should tax a commodity more heavily if, conditional on labour income, more deserving individuals consume larger quantities of that commodity. This is the case for merit goods, or if the government otherwise seeks to compensate individuals who consume larger quantities of that commodity. Furthermore, the government wishes to tax commodities at different rates to the extent that doing so reduces the distortions caused by the labour income tax. This is the case when individuals with different incomes have different preferences, or when individuals with different labour supplies also have different consumption pattern

Suggested Citation

  • Kevin Spiritus, 2022. "Optimal Commodity Taxation When Households Earn Multiple Incomes," Tinbergen Institute Discussion Papers 22-082/VI, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20220082
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    References listed on IDEAS

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    5. Marc Fleurbaey & François Maniquet, 2018. "Optimal Income Taxation Theory and Principles of Fairness," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 1029-1079, September.
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    More about this item

    Keywords

    optimal commodity taxation; multidimensional taxation;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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