Towards a theory of the direct-indirect tax mix

Despite the fact that all developed economies levy broadly based indirect taxes alongside direct taxes, little theory is devoted to explaining the direct-indirect tax mix. Our purpose is to show that if different taxes have different evasion characteristics, some optimal tax mix emerges naturally. A...

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Bibliographic Details
Published in:Journal of public economics 1994-09, Vol.55 (1), p.71-88
Main Authors: Boadway, Robin, Marchand, Maurice, Pestieau, Pierre
Format: Article
Language:English
Subjects:
Commodities
Direct taxation
Direct taxes
Economic models
Income tax
Indirect
Indirect taxation
Public economics
Studies
Tax evasion
Tax rates
Taxation
Taxation economics
Taxes
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Summary:Despite the fact that all developed economies levy broadly based indirect taxes alongside direct taxes, little theory is devoted to explaining the direct-indirect tax mix. Our purpose is to show that if different taxes have different evasion characteristics, some optimal tax mix emerges naturally. Assuming that only income tax can be evaded and focusing on a two-class economy, we analyse the case for supplementing optimal (non-linear) income taxation with commodity taxation, and we develop conditions under which the latter should or should not be uniform.
ISSN:0047-2727
1879-2316
DOI:10.1016/0047-2727(94)90081-7