Taxing Leisure Complements
Ever since Corlett and Hague (1953), it has been understood that it tends to be optimal on second-best grounds to (relatively) tax complements to leisure and subsidize substitutes because doing so helps to offset the distorting effect of taxation on labor supply. Yet in the context of simultaneous optimization of a nonlinear income tax and commodity taxes, Atkinson and Stiglitz (1976) claim to have demonstrated the opposite, that goods complementary with leisure should "face lower tax rates, whereas substitutes face higher tax rates." Derivations in leading texts on optimal taxation seem to yield opposing conclusions regarding the sign of optimal deviation of commodity taxes from uniformity. It is demonstrated that the optimality of relatively taxing leisure complements is indeed correct, and conflicting results are explained.
|Date of creation:||Oct 2008|
|Publication status:||published as TAXING LEISURE COMPLEMENTS LOUIS KAPLOW† Article first published online: 5 AUG 2010 DOI: 10.1111/j.1465-7295.2009.00230.x © 2009 Western Economic Association International Issue Economic Inquiry Economic Inquiry Volume 48, Issue 4, pages 1065–1071, October 2010|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- LÃ©onard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521331586, September.
- LÃ©onard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521337465, September.
- Aled ab Iorwerth & John Whalley, 2002. "Efficiency considerations and the exemption of food from sales and value added taxes," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 166-182, February.
- Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, September.
- West, Sara E. & Parry, Ian W.H., 2009. "Alcohol-Leisure Complementarity: Empirical Estimates and Implications for Tax Policy," National Tax Journal, National Tax Association, vol. 62(4), pages 611-633, December.
- West, Sarah E. & Parry, Ian W.H., 2009. "Alcohol/Leisure Complementarity: Empirical Estimates and Implications for Tax Policy," Discussion Papers dp-09-09, Resources For the Future.
- 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.
- 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.
- Guy Laroque, 2004. "Indirect Taxation is Superfluous under Separability and Taste Homogeneity : A Simple Proof," Working Papers 2004-23, Centre de Recherche en Economie et Statistique.
- J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
- Leonard, Daniel, 1987. "Co-state variables correctly value stocks at each instant A proof," Journal of Economic Dynamics and Control, Elsevier, vol. 11(1), pages 117-122, March.
- 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.
- Dorfman, Robert, 1969. "An Economic Interpretation of Optimal Control Theory," American Economic Review, American Economic Association, vol. 59(5), pages 817-831, December. Full references (including those not matched with items on IDEAS)