TY  - JOUR
AU  - Kaplow,Louis
TI  - On the Undesirability of Commodity Taxation Even When Income Taxation is Not Optimal
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10407
PY  - 2004
Y2  - April 2004
UR  - http://www.nber.org/papers/w10407
L1  - http://www.nber.org/papers/w10407.pdf
N1  - Author contact info:
Louis Kaplow
Harvard University
Hauser 322
Cambridge, MA  02138
Tel: 617/495-4101
Fax: 617/496-4880
E-Mail: meskridge@law.harvard.edu
AB  - An important result due to Atkinson and Stiglitz (1976) is that differential commodity taxation is not optimal in the presence of an optimal nonlinear income tax (given weak separability of utility between labor and all consumption goods).  This article demonstrates that their conclusion holds regardless of whether the income tax is optimal.  In particular, given any commodity tax and income tax system, differential commodity taxation can be eliminated in a manner that results in a Pareto improvement. Also, differential commodity taxation can be proportionally reduced so as to generate a Pareto improvement.  In addition, for commodity tax reforms that do not eliminate or proportionally reduce differential taxation, a simple efficiency condition is offered for determining whether a Pareto improvement is possible.
ER  -