Tax reform via commodity grouping

In designing indirect taxation, administrative costs can be saved by placing commodities in common rate groups. The Corlett-Hague reform is used to investigate how commodities should be grouped. Differentiated tax groupings which dominate uniformity are identified. A restriction on the size of tax c...

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Bibliographic Details
Published in:Journal of public economics 1989-06, Vol.39 (1), p.67-81
Main Author: Gordon, James P.F.
Format: Article
Language:English
Subjects:
Commodities
Economic models
Fiscal policy
Optimal
Studies
Tax rates
Tax reform
Welfare economics
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Summary:In designing indirect taxation, administrative costs can be saved by placing commodities in common rate groups. The Corlett-Hague reform is used to investigate how commodities should be grouped. Differentiated tax groupings which dominate uniformity are identified. A restriction on the size of tax changes reveals conditions for local optimality. Important determinants are initial budget shares and how commodities differ in terms of optimal tax characteristics, e.g. in the single-person case, compensated cross wage elasticities. Along the line of tax characteristics, the locally optimal grouping is ‘connected’.
ISSN:0047-2727
1879-2316
DOI:10.1016/0047-2727(89)90055-8