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Title:Indirect taxes for redistribution: Should necessity goods be favored? PDF Logo
Authors:Boadway, Robin
Pestieau, Pierre
Issue Date:2011
Series/Report no.:CESifo working paper: Public Finance 3667
Abstract:Atkinson and Stiglitz show that with weakly separability, differential commodity taxes are unnecessary given an optimal nonlinear income tax. Deaton showed that with an optimal linear progressive income tax, commodity taxes are superfluous under weakly separable and linear Engel curves. Using the latter case as an example, we derive two main results. If the income tax is less progressive than optimal, necessities should bear a lower tax rate than luxuries. If low-income households are income-constrained so cannot afford luxuries, it may be optimal to tax necessities at higher rates than luxuries, depending whether labor varies along the intensive or extensive margin.
Subjects:optimal income tax
Atkinson-Stiglitz Theorem
indirect taxes
JEL:H21
H23
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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