Abstract
This paper amalgamates two topical issues in the economics of commodity taxation: the general case for non-uniformity, and the tax treatment of commodities that are either inputs to household production or close substitutes for household produced goods. Assuming a redistributive objective and that the government can implement a non-linear income tax system and linear commodity taxes we investigate if the existence of household production generates a natural case for non-uniform commodity taxation. Four main results are reported. First, when the set of commodities is partitioned into consumption goods and input goods, and commodity taxes are restricted to being within-group uniform, the composite commodity theorem can be used to characterize the optimal commodity taxes. Secondly, sufficient conditions for within-group uniform commodity taxes to be fully optimal are derived. Thirdly, we argue that an input good should be taxed at a higher rate than general consumption if and only if the degree of complementarity in household production (between the input good and a time-input) is larger than the degree of complementarity in consumption (between general consumption and the household produced good). Finally, we show that under simple normality, a market substitute for the household-produced good should be taxed at a lower rate than general consumption. The intuition for the last two results is that the suggested pattern of taxation discourages "do-it-yourself" behaviour, which relaxes the self-selection problem.
| Original language | English |
|---|---|
| Pages (from-to) | 563-584 |
| Number of pages | 22 |
| Journal | International Tax and Public Finance |
| Volume | 7 |
| Issue number | 4-5 |
| Publication status | Published - 2000 |
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Keywords
- Household production
- Indirect taxation
- Self-selection
Cite this
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Household Production and the Design of the Tax Structure. / Anderberg, Dan; Balestrino, Alessandro.
In: International Tax and Public Finance, Vol. 7, No. 4-5, 2000, p. 563-584.Research output: Contribution to journal › Article
TY - JOUR
T1 - Household Production and the Design of the Tax Structure
AU - Anderberg, Dan
AU - Balestrino, Alessandro
PY - 2000
Y1 - 2000
N2 - This paper amalgamates two topical issues in the economics of commodity taxation: the general case for non-uniformity, and the tax treatment of commodities that are either inputs to household production or close substitutes for household produced goods. Assuming a redistributive objective and that the government can implement a non-linear income tax system and linear commodity taxes we investigate if the existence of household production generates a natural case for non-uniform commodity taxation. Four main results are reported. First, when the set of commodities is partitioned into consumption goods and input goods, and commodity taxes are restricted to being within-group uniform, the composite commodity theorem can be used to characterize the optimal commodity taxes. Secondly, sufficient conditions for within-group uniform commodity taxes to be fully optimal are derived. Thirdly, we argue that an input good should be taxed at a higher rate than general consumption if and only if the degree of complementarity in household production (between the input good and a time-input) is larger than the degree of complementarity in consumption (between general consumption and the household produced good). Finally, we show that under simple normality, a market substitute for the household-produced good should be taxed at a lower rate than general consumption. The intuition for the last two results is that the suggested pattern of taxation discourages "do-it-yourself" behaviour, which relaxes the self-selection problem.
AB - This paper amalgamates two topical issues in the economics of commodity taxation: the general case for non-uniformity, and the tax treatment of commodities that are either inputs to household production or close substitutes for household produced goods. Assuming a redistributive objective and that the government can implement a non-linear income tax system and linear commodity taxes we investigate if the existence of household production generates a natural case for non-uniform commodity taxation. Four main results are reported. First, when the set of commodities is partitioned into consumption goods and input goods, and commodity taxes are restricted to being within-group uniform, the composite commodity theorem can be used to characterize the optimal commodity taxes. Secondly, sufficient conditions for within-group uniform commodity taxes to be fully optimal are derived. Thirdly, we argue that an input good should be taxed at a higher rate than general consumption if and only if the degree of complementarity in household production (between the input good and a time-input) is larger than the degree of complementarity in consumption (between general consumption and the household produced good). Finally, we show that under simple normality, a market substitute for the household-produced good should be taxed at a lower rate than general consumption. The intuition for the last two results is that the suggested pattern of taxation discourages "do-it-yourself" behaviour, which relaxes the self-selection problem.
KW - Household production
KW - Indirect taxation
KW - Self-selection
UR - http://www.scopus.com/inward/record.url?scp=0347317333&partnerID=8YFLogxK
M3 - Article
VL - 7
SP - 563
EP - 584
JO - International Tax and Public Finance
JF - International Tax and Public Finance
SN - 0927-5940
IS - 4-5
ER -