Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245446 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9265
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Deaton (1979) showed that if preferences are weakly separable in goods and labour and quasihomothetic in goods and the government imposes an optimal linear progressive tax, commodity taxes are redundant. Hellwig (2009) generalized the Deaton theorem by showing that the allocation obtained under differential commodity taxes and an arbitrary linear progressive income tax is Pareto-dominated by one with uniform commodity taxes and a reformed linear progressive income tax. We show that both the Deaton theorem and the Hellwig extension continue to apply if a) the government implements a piecewise linear progressive income tax and b) labour varies along both the intensive and extensive margins. Some extensions are considered.
Subjects: 
optimal income taxation
commodity taxation
piecewise linear income tax
JEL: 
H21
H23
H24
Document Type: 
Working Paper
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