IDEAS home Printed from https://ideas.repec.org/p/byu/byumcl/201403.html
   My bibliography  Save this paper

A Big Data Approach to Optimal Sales Taxation

Author

Listed:
  • Christian Baker

    (Department of Economics, Brigham Young University)

  • Jeremy Bejarano

    (Department of Economics, University of Chicago)

  • Richard W. Evans

    (Department of Economics, Brigham Young University)

  • Kenneth L. Judd

    (Hoover Institution, Stanford University)

  • Kerk L. Phillips

    (Department of Economics, Brigham Young University)

Abstract

We characterize and demonstrate a solution method for an optimal commodity (sales) tax problem consisting of multiple goods, heterogeneous agents, and a nonconvex policy maker optimization problem. Our approach allows for more dimensions of heterogeneity than has been previously possible, incorporates potential model uncertainty and policy objective uncertainty, and relaxes some of the assumptions in the previous literature that were necessary to generate a convex optimization problem for the policy maker. Our solution technique involves creating a large database of optimal responses by different individuals for different policy parameters and using ``big data'' techniques to compute policy maker objective values over these individuals. We calibrate our model to the United States and test the effects of a differentiated optimal commodity tax versus a flat tax and the effect of exempting a broad class of goods (services) from commodity taxation. We find that only a potentially small amount of tax revenue is lost for a given societal welfare level by departing from an optimal differentiated sales tax schedule to a uniform flat tax and that there is only a small loss in revenue from exempting a class of goods such as services in the United States.

Suggested Citation

  • Christian Baker & Jeremy Bejarano & Richard W. Evans & Kenneth L. Judd & Kerk L. Phillips, 2014. "A Big Data Approach to Optimal Sales Taxation," BYU Macroeconomics and Computational Laboratory Working Paper Series 2014-03, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
  • Handle: RePEc:byu:byumcl:201403
    as

    Download full text from publisher

    File URL: https://docs.google.com/file/d/0B6KGaihAO5TJV3huR3ljSmYtcHM/edit
    File Function: First version, 2014
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Liran Einav & Jonathan Levin, 2014. "The Data Revolution and Economic Analysis," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 1-24.
    3. Ballard, Charles L. & Lee, Jaimin, 2007. "Internet Purchases, Cross-Border Shopping, and Sales Taxes," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(4), pages 711-725, December.
    4. Rebekka Christopoulou & Philip Vermeulen, 2012. "Markups in the Euro area and the US over the period 1981–2004: a comparison of 50 sectors," Empirical Economics, Springer, vol. 42(1), pages 53-77, February.
    5. Campbell, John Y, 1996. "Understanding Risk and Return," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 298-345, April.
    6. Saez, Emmanuel, 2002. "The desirability of commodity taxation under non-linear income taxation and heterogeneous tastes," Journal of Public Economics, Elsevier, vol. 83(2), pages 217-230, February.
    7. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
    8. McDonald, James B, 1984. "Some Generalized Functions for the Size Distribution of Income," Econometrica, Econometric Society, vol. 52(3), pages 647-663, May.
    9. Mankiw, N. Gregory & Zeldes, Stephen P., 1991. "The consumption of stockholders and nonstockholders," Journal of Financial Economics, Elsevier, vol. 29(1), pages 97-112, March.
    10. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
    11. James Alm & Mikhail I. Melnik, 2005. "Sales Taxes and the Decision to Purchase Online," Public Finance Review, , vol. 33(2), pages 184-212, March.
    12. Deaton, Angus, 1977. "Equity, efficiency, and the structure of indirect taxation," Journal of Public Economics, Elsevier, vol. 8(3), pages 299-312, December.
    13. Joel Slemrod & Jon Bakija, 2004. "Taxing Ourselves, 3rd Edition: A Citizen's Guide to the Debate over Taxes," MIT Press Books, The MIT Press, edition 3, volume 1, number 026269302x, December.
    14. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
    15. James R. Hines Jr., 2007. "Taxing Consumption and Other Sins," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 49-68, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Islam, Nizamul & Colombino, Ugo, 2018. "The case for NIT+FT in Europe. An empirical optimal taxation exercise," Economic Modelling, Elsevier, vol. 75(C), pages 38-69.

    More about this item

    Keywords

    lOptimal tax; sales tax; commodity tax; big data; robustness;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:byu:byumcl:201403. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kerk Phillips) The email address of this maintainer does not seem to be valid anymore. Please ask Kerk Phillips to update the entry or send us the correct email address. General contact details of provider: http://edirc.repec.org/data/debyuus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.