Taxation of Reusable Goods

The paper analyses commodity taxation in an economy where a good can be recycled. Consumers deliver units of a used good to a reuse operator, who sells the good in a second-hand market after some processing. Two regimes are considered. One is a pure market setting where the reuse operator pays consumers for the used good. The alternative is a regime where the supply of used goods to the reuse operator is based solely on charitable donations. Taxes are set to achieve social efficiency. In the market regime the recycled good should be taxed at a reduced rate, which is increasing in the marginal processing cost of the operator. In the charity regime there is no case for deviating from uniform taxation.