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Optimal grouping of commodities for indirect taxation

  • Pascal Belan


    (LEN - Laboratoire d'Economie de Nantes - Université de Nantes)

  • Stéphane Gauthier

    (ENSAE - École Nationale de la Statistique et de l'Administration Économique - ENSAE ParisTech, CREST-INSEE - Centre de Recherche en Economie et en Statistique - Institut national de la statistique et des études économiques (INSEE))

  • Guy Laroque


    (CREST-INSEE - Centre de Recherche en Economie et en Statistique - Institut national de la statistique et des études économiques (INSEE), Department of Economics - University College London)

Indirect taxes contribute to a sizeable part of government revenues around the world. Typically there are few different tax rates, and the goods are partitioned into classes associated with each rate. The present paper studies how to group the goods in these few classes. We take as given the number of tax rates and study the optimal aggregation (or classification) of commodities of the fiscal authority in a second best setup. The results are illustrated on data from the United Kingdom.

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Paper provided by HAL in its series Post-Print with number hal-00731151.

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Date of creation: Jul 2008
Date of revision:
Publication status: Published, Journal of Public Economics, 2008, 92, 7, 1738-1750
Handle: RePEc:hal:journl:hal-00731151
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  1. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  2. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1994. "Towards a theory of the direct-indirect tax mix," Journal of Public Economics, Elsevier, vol. 55(1), pages 71-88, September.
  3. Blundell, Richard & Robin, Jean Marc, 1999. "Estimation in Large and Disaggregated Demand Systems: An Estimator for Conditionally Linear Systems," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(3), pages 209-32, May-June.
  4. Kopczuk, Wojciech, 2003. "A note on optimal taxation in the presence of externalities," Economics Letters, Elsevier, vol. 80(1), pages 81-86, July.
  5. Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty and optimal taxation: In defense of commodity taxes," Journal of Public Economics, Elsevier, vol. 56(2), pages 291-310, February.
  6. Pascal Belan & Stéphane Gauthier, 2004. "Optimal commodity grouping in a partial equilibrium framework," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00106895, HAL.
  7. Gordon, James P. F., 1989. "Tax reform via commodity grouping," Journal of Public Economics, Elsevier, vol. 39(1), pages 67-81, June.
  8. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
  9. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Laroque, Guy R., 2005. "Indirect taxation is superfluous under separability and taste homogeneity: a simple proof," Economics Letters, Elsevier, vol. 87(1), pages 141-144, April.
  11. Louis Kaplow, 2004. "On the Undesirability of Commodity Taxation Even When Income Taxation is Not Optimal," NBER Working Papers 10407, National Bureau of Economic Research, Inc.
  12. 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.
  13. Browning, Martin & Meghir, Costas, 1991. "The Effects of Male and Female Labor Supply on Commodity Demands," Econometrica, Econometric Society, vol. 59(4), pages 925-51, July.
  14. Pascal Belan & Stéphane Gauthier, 2006. "Optimal indirect taxation with a restricted number of tax rates," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00106898, HAL.
  15. Saez, Emmanuel, 2004. "Direct or indirect tax instruments for redistribution: short-run versus long-run," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 503-518, March.
  16. 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.
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