NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Aled ab Iorwerth

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Working Papers

July 1998Meals on Wheels: Restaurant and Home Meal Production and the Exemption of Food from Sales and Value Added Taxes
with John Whalley: w6653
This paper discusses efficiency considerations underlying the widespread exemption of food from sales and value added taxes, in contrast to the distributional considerations usually used to justify them, analyzing the implications for tax policy. Although there are increasing returns in both household and market production of meals there are, nonetheless, critical differences between them. Market production is imperfectly competitive leading to average cost pricing with free entry, but because production in the household involves only one firm, any household can appropriate the consumer surplus from its own production and hence marginal cost price. We use a numerical simulation model using 1994 Canadian data with increasing returns to scale in both home and restaurant meals resulting ...

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