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Taxing Leisure Complements


Louis Kaplow


Harvard Law School; National Bureau of Economic Research (NBER)

October 2008

NBER Working Paper No. W14397

Abstract:     
Ever since Corlett and Hague (1953), it has been understood that it tends to be optimal on second-best grounds to (relatively) tax complements to leisure and subsidize substitutes because doing so helps to offset the distorting effect of taxation on labor supply. Yet in the context of simultaneous optimization of a nonlinear income tax and commodity taxes, Atkinson and Stiglitz (1976) claim to have demonstrated the opposite, that goods complementary with leisure should face lower tax rates, whereas substitutes face higher tax rates. Derivations in leading texts on optimal taxation seem to yield opposing conclusions regarding the sign of optimal deviation of commodity taxes from uniformity. It is demonstrated that the optimality of relatively taxing leisure complements is indeed correct, and conflicting results are explained.

Number of Pages in PDF File: 12

JEL Classification: H21, H24

working papers series


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Date posted: October 10, 2008  

Suggested Citation

Kaplow, Louis, Taxing Leisure Complements (October 2008). NBER Working Paper No. W14397. Available at SSRN: http://ssrn.com/abstract=1281889

Contact Information

Louis Kaplow (Contact Author)
Harvard Law School ( email )
1575 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-4101 (Phone)
617-496-4880 (Fax)
HOME PAGE: http://www.law.harvard.edu/faculty/directory/facdir.php?id=32&show=bibliography
National Bureau of Economic Research (NBER)
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Cambridge, MA 02138
United States
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