An alternative way to model merit good arguments
Besley (1988) uses a scaling approach to model merit good arguments in commodity tax policy. In this paper, I question this approach on the grounds that it produces 'wrong' recommendations--taxation (subsidisation) of merit (demerit) goods--whenever the demand for the (de)merit good is inelastic. I propose an alternative approach that does not suffer from this deficiency, and derive the ensuing first and second best tax rules, as well as the marginal cost expressions to perform tax reform analysis.
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- Kaplanoglou, Georgia & Newbery, David Michael, 2003.
"Indirect Taxation in Greece: Evaluation and Possible Reform,"
International Tax and Public Finance,
Springer;International Institute of Public Finance, vol. 10(5), pages 511-533, September.
- Georgia Kaplanoglou & David Michael Newbery, 2002. "Indirect Taxation in Greece: Evaluation and Possible Reform," CESifo Working Paper Series 661, CESifo Group Munich.
- Madden, David, 1995. "Labour Supply, Commodity Demand and Marginal Tax Reform," Economic Journal, Royal Economic Society, vol. 105(429), pages 485-497, March.
- Pazner, Elisha A, 1972. "Merit Wants and the Theory of Taxation," Public Finance = Finances publiques, , vol. 27(4), pages 460-472.
- Feehan, James P., 1990. "A simple model for merit good arguments : A comment," Journal of Public Economics, Elsevier, vol. 43(1), pages 127-129, October.
- Besley, Timothy, 1988. "A simple model for merit good arguments," Journal of Public Economics, Elsevier, vol. 35(3), pages 371-383, April.
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