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Supplementary Commodity Taxes, Labor Tax, and the Tax-mix

Author

Listed:
  • Yukihiro Nishimura

    (Graduate School of Economics, Osaka University)

Abstract

This paper extends the Atkinson‒Stiglitz Theorem by relaxing the assumption of weak separability of preferences. We show that, to supplement income taxation, the optimal commodity tax burden relative to disposable income is regressive. This regressivity reinforces the classic U-shaped pattern of optimal labor income taxation. Moreover, when goods are complementary to labor, e.g., child care, the overall marginal labor tax burden increases once commodity taxes are introduced; when they are substitutes, it decreases. Under the Rawlsian objective, these variations in marginal tax rates have stronger effects at lower income levels.

Suggested Citation

  • Yukihiro Nishimura, 2025. "Supplementary Commodity Taxes, Labor Tax, and the Tax-mix," Discussion Papers in Economics and Business 25-08-Rev., Osaka University, Graduate School of Economics, revised Mar 2026.
    • Handle: RePEc:osk:wpaper:2508r
    as

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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
    • 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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