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Supplementary Commodity Taxes, Labor Tax on the Middle Class, and the Tax-mix

Author

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  • Yukihiro Nishimura

    (Osaka University and CESifo)

Abstract

Given that the incentive consideration reduces the scope for redistribution, Mirrlees (1976, Optimal tax theory: a synthesis. Journal of Public Economics 6, 327‒358) emphasized the redistributive effects of commodity taxes (which include capital income tax), which reduces the effective tax wedge on labor income. We revert to the unidimensional case to show that the optimal labor wedge can become higher after the introduction of the optimal commodity taxes/subsidies when labor complements are subsidized. This is partly because supplementary commodity taxes are not increasing in ability as Mirrlees (1976) thought. Among the classic results, decreasing marginal taxes on the middle class, including the mode of the income distribution, remains valid with commodity taxes and without separability in the utility function.

Suggested Citation

  • Yukihiro Nishimura, 2025. "Supplementary Commodity Taxes, Labor Tax on the Middle Class, and the Tax-mix," Discussion Papers in Economics and Business 25-08, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2508
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    References listed on IDEAS

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    1. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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