Taxing Leisure Complements

7 Pages Posted: 15 Sep 2010

See all articles by Louis Kaplow

Louis Kaplow

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

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Abstract

Ever since Corlett and Hague, 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, Atkinson and Stiglitz’s optimal income/commodity tax analysis claims to demonstrate the opposite, and derivations in leading texts on optimal taxation offer 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.

JEL Classification: H21, H24

Suggested Citation

Kaplow, Louis, Taxing Leisure Complements. Economic Inquiry, Vol. 48, Issue 4, pp. 1065-1071, October 2010. Available at SSRN: https://ssrn.com/abstract=1677123 or http://dx.doi.org/10.1111/j.1465-7295.2009.00230.x

Louis Kaplow (Contact Author)

Harvard Law School ( email )

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HOME PAGE: http://www.law.harvard.edu/faculty/directory/facdir.php?id=32&show=bibliography

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