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Linear Commodity Tax Reform and Optimal Commodity Taxes under Partial Separability

Author

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  • Yukihiro Nishimura

    (Graduate School of Economics,Osaka University)

Abstract

Under a regime of nonlinear income tax and fully linear commodity taxes, we may not be able to construct a welfare-improving tax reform towards uniform taxes on a subset of commodities. Furthermore, distortions of production that alter relative wages can improve welfare by influencing mimickers’ consumption choices and thus relaxing incentive compatibility constraints. We then identify conditions for optimal uniform taxation within separated consumption groups. Specifically, to neutralize heterogeneous cross-substitution effects across income classes, uniform commodity taxes require parallel income effects, so the restrictions on the Engel curves cannot be dispensed with even under nonlinear income taxation.

Suggested Citation

  • Yukihiro Nishimura, 2025. "Linear Commodity Tax Reform and Optimal Commodity Taxes under Partial Separability," Discussion Papers in Economics and Business 25-09-Rev2., Osaka University, Graduate School of Economics, revised Jan 2026.
    • Handle: RePEc:osk:wpaper:2509r2
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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

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