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Tax avoidance and commodity tax differentiation

Author

Listed:
  • Georges Casamatta

    (LISA - Laboratoire « Lieux, Identités, eSpaces, Activités » (UMR CNRS 6240 LISA) - CNRS - Centre National de la Recherche Scientifique - Università di Corsica Pasquale Paoli [Université de Corse Pascal Paoli], TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Helmuth Cremer

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We analyze the optimal combination of direct and indirect taxes in the presence of tax avoidance. Proportional commodity taxes remain part of the optimal tax structure when avoidance is possible, even when the Atkinson–Stiglitz conditions hold. Taxing consumption, despite avoidance, enhances the screening of unobserved productivity relative to income taxation alone. Under weak separability and homothetic subutility, optimal commodity taxes are positive and uniform. With non-homothetic preferences, uniformity may not hold, and the optimal differentiation between luxuries and necessities depends on the distribution of productivity.

Suggested Citation

  • Georges Casamatta & Helmuth Cremer, 2025. "Tax avoidance and commodity tax differentiation," Post-Print hal-05364410, HAL.
    • Handle: RePEc:hal:journl:hal-05364410
    DOI: 10.1016/j.econlet.2025.112714
    Note: View the original document on HAL open archive server: https://hal.science/hal-05364410v1
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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