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An alternative way to model merit good arguments

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  • Fred Schroyen

Abstract

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.

Suggested Citation

  • Fred Schroyen, 2003. "An alternative way to model merit good arguments," UFAE and IAE Working Papers 595.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    • Handle: RePEc:aub:autbar:595.03
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    References listed on IDEAS

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    1. Madden, David, 1995. "Labour Supply, Commodity Demand and Marginal Tax Reform," Economic Journal, Royal Economic Society, vol. 105(429), pages 485-497, March.
    2. Pazner, Elisha A, 1972. "Merit Wants and the Theory of Taxation," Public Finance = Finances publiques, , vol. 27(4), pages 460-472.
    3. 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.
    4. Bart Capéau & Erwin Ooghe, 2003. "Merit goods and phantom agents," Economics Bulletin, AccessEcon, vol. 8(8), pages 1-5.
    5. 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.
    6. Besley, Timothy, 1988. "A simple model for merit good arguments," Journal of Public Economics, Elsevier, vol. 35(3), pages 371-383, April.
    7. repec:ebl:ecbull:v:8:y:2003:i:8:p:1-5 is not listed on IDEAS
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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