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A Computational Procedure for Calculating Optimal Commodity Taxes with Illustrative Evidence from Indian Budget Data


  • Murty, M N
  • Ray, Ranjan


A simple procedure for calculating optimal commodity taxes is proposed, which takes into account the simultaneous interdependence of taxes, expenditure, and price levels/responses. The method also allows for the social marginal utility of income to depend on prices, besides expenditures, in a manner implied by the assumed preference functional form. Illustrative calculations on Indian budget data provide evidence not only in favor of the procedure, but of considerable sensitivity of directions of marginal tax reforms to the data set (rural or urban) used, and of optimal tax estimates to demand functional form. Copyright 1989 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Murty, M N & Ray, Ranjan, 1989. " A Computational Procedure for Calculating Optimal Commodity Taxes with Illustrative Evidence from Indian Budget Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(4), pages 655-670.
  • Handle: RePEc:bla:scandj:v:91:y:1989:i:4:p:655-70

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    References listed on IDEAS

    1. Bresnahan, Timothy F. & Trajtenberg, M., 1995. "General purpose technologies 'Engines of growth'?," Journal of Econometrics, Elsevier, vol. 65(1), pages 83-108, January.
    2. anonymous, 1995. "Does the bouncing ball lead to economic growth?," Regional Update, Federal Reserve Bank of Atlanta, issue Jul, pages 1-2,4-6.
    3. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    4. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
    5. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    6. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    7. Xavier Sala-I-Martin, 1997. "Transfers, Social Safety Nets, and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 81-102, March.
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    Cited by:

    1. Odd E. Nygård & John T. Revesz, 2015. "Optimal indirect taxation and the uniformity debate: A review of theoretical results and empirical contributions," Discussion Papers 809, Statistics Norway, Research Department.
    2. Paolo Liberati, 2001. "The Distributional Effects of Indirect Tax Changes in Italy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(1), pages 27-51, January.
    3. J. V. Meenakshi & Ranjan Ray, 1999. "Regional differences in India's food expenditure pattern: a complete demand systems approach," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(1), pages 47-74.
    4. Paolo Liberati, 2000. "Did VAT change redistribute purchasing power in Italy?," Working Papers 40, University of Rome La Sapienza, Department of Public Economics.
    5. M.N. Murty & Ranjan Ray Author-Workplace-Delhi School of Economics, 1994. "Optimal Taxation And Resource Transfers In A Federal Nation," Working papers 02, Centre for Development Economics, Delhi School of Economics.
    6. Kula, E., 2002. "Regional Welfare Weights in Investment Appraisal - The Case of India," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 32(1).
    7. Ray, R., 1994. "The Reform and Design of Commodity Taxes in the Presence of Tax Evasion with Illustrative Evidence from India," Discussion Paper 1994-108, Tilburg University, Center for Economic Research.
    8. Ray, Ranjan, 1993. "Optimal Demogrants and Taxes in a Federal Welfare State," Journal of Population Economics, Springer;European Society for Population Economics, vol. 6(3), pages 199-214.
    9. M N, Murty & Dhavala, Kishore Kumar & Ghosh, Meenakshi & Singh, Rashmi, 2006. "Social Cost-Benefit Analysis of Delhi Metro," MPRA Paper 1658, University Library of Munich, Germany.
    10. Sushama Murty, 2016. "Measuring unilateral and multilateral gains from tackling current economic inefficiencies in CO2 reductions: Theory and evidence," Discussion Papers 1604, Exeter University, Department of Economics.
    11. Odd E. Nygard & John T. Revesz, 2016. "A literature review on optimal indirect taxation and the uniformity debate," Hacienda Pública Española, IEF, vol. 218(3), pages 107-140, September.

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