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Optimal taxation with consumption time as a leisure or labor substitute

  • Boadway, Robin
  • Gahvari, Firouz

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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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 90 (2006)
Issue (Month): 10-11 (November)
Pages: 1851-1878

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:10-11:p:1851-1878
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. 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.
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  5. K. K. Lancaster, 2010. "A New Approach to Consumer Theory," Levine's Working Paper Archive 1385, David K. Levine.
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  7. Firouz Gahvari & C.C. Yang, 1993. "Optimal Commodity Taxation and Household Consumption Activities," Public Finance Review, , vol. 21(4), pages 479-487, October.
  8. 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.
  9. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  10. Cremer, Helmuth & Gahvari, Firouz, 1997. "In-kind transfers, self-selection and optimal tax policy," European Economic Review, Elsevier, vol. 41(1), pages 97-114, January.
  11. Kleven, Henrik Jacobsen, 2004. "Optimum taxation and the allocation of time," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 545-557, March.
  12. Ted Bergstrom & Soren Blomquist, 1994. "Political Economy of Subsidized Day Care," Public Economics 9401001, EconWPA.
  13. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
  14. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-06, September.
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  16. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
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