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Indirect Taxes for Redistribution: Should Necessity Goods be Favored?

  • Robin Boadway
  • Pierre Pestieau

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.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3667.

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Date of creation: 2011
Handle: RePEc:ces:ceswps:_3667
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  2. Robin Boadway & Maurice Marchand & Pierre Pestieau, 1992. "Towards a Theory of the Direct-Indirect Tax Mix," Working Papers 853, Queen's University, Department of Economics.
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  8. MARCHAND, Maurice & PESTIEAU, Pierre & RACIONERO, Maria, . "Optimal redistribution when different workers are indistinguishable," CORE Discussion Papers RP 1701, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," Review of Economic Studies, Oxford University Press, vol. 21(1), pages 21-30.
  10. Richard Arnott & Bruce Greenwald & Ravi Kanbur & Barry Nalebuff (ed.), 2003. "Economics for an Imperfect World: Essays in Honor of Joseph E. Stiglitz," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012057.
  11. Sören Blomquist & Vidar Christiansen, 2008. "Taxation and Heterogeneous Preferences," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(2), pages 218-244, June.
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  13. Jacobs, Bas, 2011. "The Marginal Cost of Public Funds is One," Working Paper Series, Center for Fiscal Studies 2011:7, Uppsala University, Department of Economics.
  14. John T. Revesz, 2014. "A Numerical Model of Optimal Differentiated Indirect Taxation," Hacienda Pública Española, IEF, vol. 211(4), pages 9-66, December.
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  18. Nava, Mario & Schroyen, Fred & Marchand, Maurice, 1996. "Optimal fiscal and public expenditure policy in a two-class economy," Journal of Public Economics, Elsevier, vol. 61(1), pages 119-137, July.
  19. Konishi, Hideo, 1995. "A Pareto-improving commodity tax reform under a smooth nonlinear income tax," Journal of Public Economics, Elsevier, vol. 56(3), pages 413-446, March.
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  21. Louis Kaplow, 2010. "Concavity of utility, concavity of welfare, and redistribution of income," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(1), pages 25-42, February.
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  23. Kaplow, Louis, 2006. "On the undesirability of commodity taxation even when income taxation is not optimal," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1235-1250, August.
  24. Deaton, Angus, 1979. "Optimally uniform commodity taxes," Economics Letters, Elsevier, vol. 2(4), pages 357-361.
  25. Diamond, P., 1980. "Income taxation with fixed hours of work," Journal of Public Economics, Elsevier, vol. 13(1), pages 101-110, February.
  26. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, vol. 73(2), pages 341-376, 03.
  27. Bertoletti, Paolo, 2006. "Logarithmic quasi-homothetic preferences," Economics Letters, Elsevier, vol. 90(3), pages 433-439, March.
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