Optimal taxation with consumption time as a leisure or labor substitute

Robin Boadway, Firouz Gahvari

Research output: Contribution to journalArticlepeer-review


This paper studies the optimal commodity taxation problem when time taken in consumption is a perfect substitute for either labor or leisure. It shows that while labor substitutability affects the optimal tax structure, leisure substitutability leaves the classical optimal tax results intact. In the Ramsey tax framework with linear income taxes, whether the consumers have the same or different earning abilities, labor substitutes tend to be taxed at a higher rate than leisure substitutes with the tax differential being increasing in consumption time. This is not necessarily the case when one allows for nonlinear income taxation.

Original languageEnglish (US)
Pages (from-to)1851-1878
Number of pages28
JournalJournal of Public Economics
Issue number10-11
StatePublished - Nov 2006


  • Consumption time
  • Labor substitutes
  • Leisure substitutes
  • Optimal taxation

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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