Is commodity taxation unfair?

Research output: Contribution to journalArticle

5 Scopus citations

Abstract

In a model where agents have unequal skills and heterogeneous preferences about consumption goods and leisure, this paper studies how to combine commodity taxes and non-linear income tax. It proposes a particular social welfare function on the basis of fairness principles. It then derives a simple criterion for evaluating the social welfare consequences of various tax schedules. Under the proposed approach, the optimal tax should have no commodity tax for some range of consumptions, and income redistribution would feature high subsidies to the working poor. It is also shown that, even when the income tax fails to be optimal, commodity taxes may not improve social welfare.

Original languageEnglish (US)
Pages (from-to)1765-1787
Number of pages23
JournalJournal of Public Economics
Volume90
Issue number10-11
DOIs
StatePublished - Nov 1 2006
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Commodity tax
  • Fairness
  • Income tax
  • Optimal tax
  • Social choice

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