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Optimal Taxation with Consumption Time as a Leisure or Labor Substitute

  • Robin Boadway

    ()

    (Queen's University)

  • Firouz Gahvari

    ()

    (University of Illinois)

This paper studies the optimal commodity taxation problem when time taken in consumption is a perfect substitute for either labor or leisure. It shows that while labor substitutability affects the optimal tax structure, leisure substitutability leaves the classical optimal tax results intact. In the Ramsey tax framework with linear income taxes, whether the consumers have the same or different earning abilities, labor substitutes tend to be taxed at a higher rate than leisure substitutes with the tax differential being increasing in consumption time. This is not necessarily the case when one allows for nonlinear income taxation.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1068.pdf
File Function: First version 2006
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1068.

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Length: 41 pages
Date of creation: Jan 2006
Date of revision:
Publication status: Forthcoming in Journal of Public Economics
Handle: RePEc:qed:wpaper:1068
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  1. Kleven, Henrik Jacobsen, 2004. "Optimum taxation and the allocation of time," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 545-557, March.
  2. Cremer, Helmuth & Gahvari, Firouz, 1997. "In-kind transfers, self-selection and optimal tax policy," European Economic Review, Elsevier, vol. 41(1), pages 97-114, January.
  3. Firouz Gahvari, 2007. "On Optimal Commodity Taxes When Consumption Is Time Consuming," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(1), pages 1-27, 02.
  4. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-06, September.
  5. Alan J. Auerbach & James R. Hines Jr., 2001. "Taxation and Economic Efficiency," NBER Working Papers 8181, National Bureau of Economic Research, Inc.
  6. Deaton, Angus, 1977. "Equity, efficiency, and the structure of indirect taxation," Journal of Public Economics, Elsevier, vol. 8(3), pages 299-312, December.
  7. Bergstrom, T. & Blomqust, S., 1993. "The Political Econmomy of Subsidized Day Care," Papers 1993-15, Uppsala - Working Paper Series.
  8. Henrik Jacobsen Kleven & Wolfram F. Richter & Peter Birch Sørensen, . "Optimal Taxation with Household Production," EPRU Working Paper Series 99-12, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  9. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
  10. K. K. Lancaster, 2010. "A New Approach to Consumer Theory," Levine's Working Paper Archive 1385, David K. Levine.
  11. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Ted Bergstrom & Soren Blomquist, 1994. "Political Economy of Subsidized Day Care," Public Economics 9401001, EconWPA.
  13. 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.
  14. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  15. Firouz Gahvari & C.C. Yang, 1993. "Optimal Commodity Taxation and Household Consumption Activities," Public Finance Review, , vol. 21(4), pages 479-487, October.
  16. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
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