TY  - JOUR
AU  - Kaplow,Louis
TI  - Taxing Leisure Complements
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14397
PY  - 2008
Y2  - October 2008
UR  - http://www.nber.org/papers/w14397
L1  - http://www.nber.org/papers/w14397.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  - Ever since Corlett and Hague (1953), it has been understood that it tends to be optimal on second-best grounds to (relatively) tax complements to leisure and subsidize substitutes because doing so helps to offset the distorting effect of taxation on labor supply.  Yet in the context of simultaneous optimization of a nonlinear income tax and commodity taxes, Atkinson and Stiglitz (1976) claim to have demonstrated the opposite, that goods complementary with leisure should "face lower tax rates, whereas substitutes face higher tax rates."  Derivations in leading texts on optimal taxation seem to yield opposing conclusions regarding the sign of optimal deviation of commodity taxes from uniformity.  It is demonstrated that the optimality of relatively taxing leisure complements is indeed correct, and conflicting results are explained.
ER  -