The Desirability of Commodity Taxation Under Non-Linear Income Taxation and Heterogeneous Tastes

19 Pages Posted: 2 Dec 2000 Last revised: 4 Apr 2001

See all articles by Emmanuel Saez

Emmanuel Saez

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 2000

Abstract

This paper revisits the Atkinson-Stiglitz result on uselessness of commodity taxation in the presence of optimal non-linear income taxation in a more general setup, namely when tastes are heterogeneous. This general analysis displays the key economic assumptions under which the Atkinson-Stiglitz result is robust. A small tax on a given commodity is desirable if high income earners have a relatively higher taste for this commodity or if consumption of this commodity increases with leisure. An application to the case of savings suggests that, even in the presence of optimal non-linear earnings taxation, there is a role for a supplemental capital income tax in the standard overlapping generation model.

Suggested Citation

Saez, Emmanuel, The Desirability of Commodity Taxation Under Non-Linear Income Taxation and Heterogeneous Tastes (December 2000). NBER Working Paper No. w8029. Available at SSRN: https://ssrn.com/abstract=252204

Emmanuel Saez (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-4631 (Phone)
510-642-6615 (Fax)

National Bureau of Economic Research (NBER)

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