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Indirect Taxes for Redistribution: Should Necessity Goods be Favored?

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  • Robin Boadway
  • Pierre Pestieau

Abstract

Atkinson and Stiglitz show that with weakly separability, differential commodity taxes are unnecessary given an optimal nonlinear income tax. Deaton showed that with an optimal linear progressive income tax, commodity taxes are superfluous under weakly separable and linear Engel curves. Using the latter case as an example, we derive two main results. If the income tax is less progressive than optimal, necessities should bear a lower tax rate than luxuries. If low-income households are income-constrained so cannot afford luxuries, it may be optimal to tax necessities at higher rates than luxuries, depending whether labor varies along the intensive or extensive margin.

Suggested Citation

  • Robin Boadway & Pierre Pestieau, 2011. "Indirect Taxes for Redistribution: Should Necessity Goods be Favored?," CESifo Working Paper Series 3667, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3667
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    References listed on IDEAS

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    Cited by:

    1. Bastani, Spencer & Blomquist, Sören & Micheletto, Luca, 2016. "Optimal commodity taxation with varying quality of goods," Research in Economics, Elsevier, vol. 70(1), pages 89-100.
    2. Odd E. Nygard & John T. Revesz, 2016. "A literature review on optimal indirect taxation and the uniformity debate," Hacienda Pública Española, IEF, vol. 218(3), pages 107-140, September.

    More about this item

    Keywords

    optimal income tax; Atkinson-Stiglitz Theorem; indirect taxes;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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