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Public Provision, Commodity Demand and Hours of Work: An Empirical Analysis

Listed author(s):
  • Jukka Pirttilä
  • Ilpo Suoniemi

Atkinson and Stiglitz (Journal of Public Economics 1976) show that when the government has access to non-linear income taxation and consumer preferences are separable between consumption and leisure, there is no need for differentiated commodity taxation. This paper examines the empirical validity of this claim using consumption data from Finland. The data have extensive information on commodity demand, the use of public services and hours of work. When labour income is controlled for in a semi-parametric way, we find that capital income and housing expenses are negatively associated with hours of work, whereas the use of child care is somewhat positively correlated with labour supply. These results suggest that capital income and housing should be taxed whereas day care could perhaps be subsidised.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3000.

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Date of creation: 2010
Handle: RePEc:ces:ceswps:_3000
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  1. Gordon, Roger H. & Kopczuk, Wojciech, 2014. "The choice of the personal income tax base," Journal of Public Economics, Elsevier, vol. 118(C), pages 97-110.
  2. Michael Lokshin, 2006. "Difference-based semiparametric estimation of partial linear regression models," Stata Journal, StataCorp LP, vol. 6(3), pages 377-383, September.
  3. Lundin, Daniela & Mörk, Eva & Öckert, Björn, 2008. "How far can reduced childcare prices push female labour supply?," Labour Economics, Elsevier, vol. 15(4), pages 647-659, August.
  4. Sören Blömquist & Vidar Christiansen, 1998. "Price Subsidies Versus Public Provision," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(3), pages 283-306, July.
  5. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
  6. Pirttila, Jukka & Tuomala, Matti, 2002. " Publicly Provided Private Goods and Redistribution: A General Equilibrium Analysis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 173-188.
  7. 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.
  8. Vidar Christiansen, 1981. "Evaluation of Public Projects under Optimal Taxation," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 447-457.
  9. Boadway, Robin & Keen, Michael, 1993. "Public Goods, Self-Selection and Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 463-478, August.
  10. Bastani, Spencer & Blomquist, Sören & Micheletto, Luca, 2010. "Public Provision of Private Goods, Tagging and Optimal Income Taxation with Heterogeneity in Needs," Working Paper Series, Center for Fiscal Studies 2010:14, Uppsala University, Department of Economics.
  11. Boadway, Robin & Marchand, Maurice, 1995. "The Use of Public Expenditures for Redistributive Purposes," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 45-59, January.
  12. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
  13. Sören Blomquist & Vidar Christiansen & Luca Micheletto, 2010. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 1-27, May.
  14. 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.
  15. Qi Li & Jeffrey Scott Racine, 2006. "Nonparametric Econometrics: Theory and Practice," Economics Books, Princeton University Press, edition 1, number 8355.
  16. 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.
  17. Boadway, R. & Marchand, M., 1990. "The use of public expenditures for distributive purposes," CORE Discussion Papers 1990066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 333-383, June.
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