On the undesirability of commodity taxation even when income taxation is not optimal

Description

"An important result due to Atkinson and Stiglitz (1976) is that differential commodity taxation is not optimal in the presence of an optimal nonlinear income tax (given weak separability of utility between labor and all consumption goods). This article demonstrates that their conclusion holds regardless of whether the income tax is optimal. In particular, given any commodity tax and income tax system, differential commodity taxation can be eliminated in a manner that results in a Pareto improvement. Also, differential commodity taxation can be proportionally reduced so as to generate a Pareto improvement. In addition, for commodity tax reforms that do not eliminate or proportionally reduce differential taxation, a simple efficiency condition is offered for determining whether a Pareto improvement is possible"--National Bureau of Economic Research web site.

Subjects

Series Statement

• NBER working paper series -- no. 10407.
• Working paper series (National Bureau of Economic Research) -- working paper no. 10407.

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Other Editions

• On the undesirability of commodity taxation even when income taxation is not optimalNational Bureau of Economic Research2004-01-01
• On the undesirability of commodity taxation even when income taxation is not optimalElectronic resourceNational Bureau of Economic Research2004-01-01