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On the efficiency of uniform taxation in a many-consumer economy

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  • Michael Smart

Abstract

We derive necessary and sufficient conditions on preferences for uniform taxation to be Pareto efficient in a many-consumer economy. We argue that uniformity is desirable only under conditions far more restrictive than suggested in previous literature, most of which is based on analysis of a single-consumer economy. When the only feasible direct tax is a poll tax, uniformity holds if and only if consumers have identical, linear Engel curves. When income can be redistributed optimally through direct taxes, uniformity also holds if wage elasticities of demand for all goods are constant and equal for all consumers.

Suggested Citation

  • Michael Smart, 1997. "On the efficiency of uniform taxation in a many-consumer economy," Working Papers msmart-97-01, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:msmart-97-01
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    References listed on IDEAS

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    1. Deaton, Angus, 1981. "Optimal Taxes and the Structure of Preferences," Econometrica, Econometric Society, vol. 49(5), pages 1245-1260, September.
    2. Sadka, Efraim, 1977. "A theorem on uniform taxation," Journal of Public Economics, Elsevier, vol. 7(3), pages 387-391, June.
    3. Angus Deaton, 1979. "The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation," Review of Economic Studies, Oxford University Press, vol. 46(3), pages 391-405.
    4. Besley, Timothy & Jewitt, Ian, 1995. "Uniform taxation and consumer preferences," Journal of Public Economics, Elsevier, vol. 58(1), pages 73-84, September.
    5. 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.
    6. Blackorby, Charles & Davidson, Russell & Schworm, William, 1993. "Economies with a Two-Sector Representation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(4), pages 717-734, October.
    7. Deaton, Angus, 1979. "Optimally uniform commodity taxes," Economics Letters, Elsevier, vol. 2(4), pages 357-361.
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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