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Optimal tax mix with merit goods

Author

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  • RACIONERO, Maria del Mar

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

Abstract

This paper deals with optimal taxation in a two-class economy with two private commodities and labour. We derive optimal nonlinear income and linear commodity taxes in the presence of merit goods. We formulate merit good arguments via a pathology of individual choice. We assume weak separability between consumption and leisure and show that the standard optimal tax results are modified due to merit good considerations. We first find a subsidy on the merit good. Secondly, optimal income marginal tax rates are also shown to dioeer from the standard literature: it is positive on high-ability individuals and on low-ability individuals it is ambiguous because of a dampening eoeect due to merit good considerations. Finally, we derive the effective marginal tax rates

Suggested Citation

  • RACIONERO, Maria del Mar, 1998. "Optimal tax mix with merit goods," LIDAM Discussion Papers CORE 1998004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1998004
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    References listed on IDEAS

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    11. repec:bla:econom:v:50:y:1983:i:197:p:19-33 is not listed on IDEAS
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    Cited by:

    1. Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2006. "Non‐Welfarist Optimal Taxation And Behavioural Public Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 849-868, December.
    2. Blomquist, Soren & Micheletto, Luca, 2006. "Optimal redistributive taxation when government's and agents' preferences differ," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1215-1233, August.
    3. Obara, Takuya & 小原, 拓也 & Tsugawa, Shuichi & Managi, Shunsuke, 2019. "Envy-free Pricing for Impure Public Good," CCES Discussion Paper Series 69, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    4. Elodie Brahic & Valérie Clément & Nathalie Moureau & Marion Vidal, 2008. "A la recherche des Merit Goods," Working Papers 08-08, LAMETA, Universtiy of Montpellier, revised Jun 2008.
    5. B. Defloor, 2010. "Marginal Cost of Indirect Taxation in the presence of a Demerit Externality with an Application to Carbon Dioxide Emissions in Belgium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/656, Ghent University, Faculty of Economics and Business Administration.
    6. Kaisa Kotakorpi, 2009. "Paternalism and Tax Competition," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 125-149, March.
    7. Obara Takuya & Tsugawa Shuichi, 2019. "Public Good Provision Financed by Nonlinear Income Tax Under Reduction of Envy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(4), pages 1-16, October.
    8. Jukka Pirttilä & Sanna Tenhunen, 2008. "Pawns and queens revisited: public provision of private goods when individuals make mistakes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(5), pages 599-619, October.
    9. Gerasimos T. Soldatos, 2020. "Merit goods and excise taxation in quasilinear markets for complementary private consumption," Public Sector Economics, Institute of Public Finance, vol. 44(4), pages 551-566.

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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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