Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83731
Authors: 
Lim, Jean
Rodríguez-Zamora, Carolina
Year of Publication: 
2010
Series/Report no.: 
Working Papers, Banco de México 2010-05
Abstract: 
Using Mexican data on household time use and consumption, we find significant substitution between goods and time in home production and different elasticities of substitution for different household commodities. Adding these findings to the Ramsey optimal tax problem, we show it is optimal to impose higher taxes on market goods used in the production of commodities with a lower elasticity of substitution between goods and time. The reason is that government wants to minimize the distortionary substitution from market purchases toward untaxed time use in home production. This is an analog of the classical Corlett and Hague (1953-1954) result, differing in that we allow for the possibility of substitution between goods and time in the production of commodities. Leaving aside distributional considerations, we conclude that higher taxes should be imposed on market goods used in the production of `Eating' and lower taxes imposed on market goods used in the production of `Recreation'.
Subjects: 
Optimal taxation
Time use
Elasticity of substitution
JEL: 
H21
J22
D13
Document Type: 
Working Paper
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