Meals on Wheels: Restaurant and Home Meal Production and the Exemption of Food from Sales and Value Added Taxes
This paper discusses efficiency considerations underlying the widespread exemption of food from sales and value added taxes, in contrast to the distributional considerations usually used to justify them, analyzing the implications for tax policy. Although there are increasing returns in both household and market production of meals there are, nonetheless, critical differences between them. Market production is imperfectly competitive leading to average cost pricing with free entry, but because production in the household involves only one firm, any household can appropriate the consumer surplus from its own production and hence marginal cost price. We use a numerical simulation model using 1994 Canadian data with increasing returns to scale in both home and restaurant meals resulting from fixed costs and where a Dixit-Stiglitz Chamberlinian structure is used to represent restaurant meal provision. Because food (along with time and durables) is an input into home provided meals, more than full taxation of food would seem to be justified to offset the non taxation of time inputs into household production, even under constant returns to scale. Because of the differences in pricing rules between market and household production with increasing returns, not only are gains from taxing food higher but they are amplified by also subsidizing food in restaurant use, and even more by subsidizing all marginal cost components of restaurant meal provision (including labour). On efficiency grounds, the exemption of food in sales and value added taxes
|Date of creation:||Jul 1998|
|Publication status:||published as Iorwerth, Aled ab and John Whalley. "Efficiency Considerations And The Exemption Of Food From Sales And Value Added Taxes," Canadian Journal of Economics, 2002, v34(1,Feb), 166-182.|
|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
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.:
- Delipalla, Sofia & Keen, Michael, 1992.
"The comparison between ad valorem and specific taxation under imperfect competition,"
Journal of Public Economics,
Elsevier, vol. 49(3), pages 351-367, December.
- Sofia Delipalla & Michael Keen, 1991. "The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition," Working Papers 821, Queen's University, Department of Economics.
- John Piggott & John Whalley, 2001. "VAT Base Broadening, Self Supply, and the Informal Sector," American Economic Review, American Economic Association, vol. 91(4), pages 1084-1094, September.
- John Piggott & John Whalley, 1998. "VAT Base Broadening, Self Supply, and The Informal Sector," NBER Working Papers 6349, National Bureau of Economic Research, Inc.
- Myles, G.D., 1989. "Industry-Specific Income Taxes," The Warwick Economics Research Paper Series (TWERPS) 334, University of Warwick, Department of Economics.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Myles, Gareth D., 1989. "Ramsey tax rules for economies with imperfect competition," Journal of Public Economics, Elsevier, vol. 38(1), pages 95-115, February.
- Dierickx, I. & Matutes, C. & Neven, D., 1988. "Indirect taxation and cournot equilibrium," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 385-399.
- Cremer, Helmuth & Thisse, Jacques-Francois, 1994. "Commodity Taxation in a Differentiated Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 613-633, August.
- Cremer, H. & Thisse, J.-F., "undated". "Commodity taxation in a differentiated oligopoly," CORE Discussion Papers RP 1112, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Cremer, Helmuth & Thisse, Jacques-François, 1993. "Commodity Taxation in a Differentiated Oligopoly," IDEI Working Papers 25, Institut d'Économie Industrielle (IDEI), Toulouse.
- CREMER, Helmut & THISSE, Jacques-François, 1992. "Commodity taxation in a differentiated oligopoly," CORE Discussion Papers 1992035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Boskin, Michael J., 1975. "Efficiency aspects of the differential tax treatment of market and household economic activity," Journal of Public Economics, Elsevier, vol. 4(1), pages 1-25, February.
- Konishi, Hideki & Okuno-Fujiwara, Masahiro & Suzumura, Kotaro, 1990. "Oligopolistic competition and economic welfare : A general equilibrium analysis of entry regulation and tax-subsidy schemes," Journal of Public Economics, Elsevier, vol. 42(1), pages 67-88, June.
- Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
- Michael L. Katz & Harvey S. Rosen, 1983. "Tax Analysis in an Oligopoly Model," NBER Working Papers 1088, National Bureau of Economic Research, Inc.
- Newbery, David M., 1986. "On the desirability of input taxes," Economics Letters, Elsevier, vol. 20(3), pages 267-270.
- Konishi, Hideki, 1990. "Final and intermediate goods taxation in an oligopolistic economy with free entry," Journal of Public Economics, Elsevier, vol. 42(3), pages 371-386, August.
- Wilson, John Douglas, 1989. "On the Optimal Tax Base for Commodity Taxation," American Economic Review, American Economic Association, vol. 79(5), pages 1196-1206, December.
- Stern, Nicholas, 1987. "The effects of taxation, price control and government contracts in oligopoly and monopolistic competition," Journal of Public Economics, Elsevier, vol. 32(2), pages 133-158, March. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6653. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.