Optimal Commodity Taxation Under Non-linear Income Taxation

Tinbergen Institute Discussion Paper 2022-018/VI

19 Pages Posted: 28 Mar 2022

See all articles by Kevin Spiritus

Kevin Spiritus

KU Leuven; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: February 21, 2022

Abstract

I characterize the optimal linear commodity taxes when households differ in multiple characteristics, in presence of an optimal non-linear tax schedule on the households' labour incomes. The optimal distortions caused by a linear commodity tax are larger if, conditional on labour income, more deserving individuals consume more of that commodity. This is the case for merit goods, or if the government otherwise seeks to compensate individuals who consume larger quantities of that commodity. Furthermore, the government wishes to tax commodities at different rates to the extent that doing so reduces the distortions caused by the labour income tax. This is the case when individuals with different incomes have different preferences, or when individuals who supply different quantities of labour have different consumption patterns. I extend these findings to the case where households earn multiple incomes.

Keywords: optimal commodity taxation, multidimensional taxation

JEL Classification: H21, H24

Suggested Citation

Spiritus, Kevin and Spiritus, Kevin, Optimal Commodity Taxation Under Non-linear Income Taxation (February 21, 2022). Tinbergen Institute Discussion Paper 2022-018/VI, Available at SSRN: https://ssrn.com/abstract=4045023 or http://dx.doi.org/10.2139/ssrn.4045023

Kevin Spiritus (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

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