TY - JOUR
T1 - Uncertainty and optimal taxation
T2 - In defense of commodity taxes
AU - Cremer, Helmuth
AU - Gahvari, Firouz
PY - 1995/2
Y1 - 1995/2
N2 - This paper re-examines the theory of optimal commodity taxation in the presence of a linear income tax, under wage uncertainty. There are two categories of goods: the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after. The paper (i) characterizes the structure of the optimal commodity taxes in view of the insurance they provide against random wage movements, (ii) proves that optimal taxation requires a mix of differential commodity taxes and a uniform lump-sum tax, and (iii) demonstrates that the post-uncertainty goods should face a positive tax rate which is higher than the tax rate on the pre-committed goods.
AB - This paper re-examines the theory of optimal commodity taxation in the presence of a linear income tax, under wage uncertainty. There are two categories of goods: the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after. The paper (i) characterizes the structure of the optimal commodity taxes in view of the insurance they provide against random wage movements, (ii) proves that optimal taxation requires a mix of differential commodity taxes and a uniform lump-sum tax, and (iii) demonstrates that the post-uncertainty goods should face a positive tax rate which is higher than the tax rate on the pre-committed goods.
KW - Optimal
KW - Uncertainty
UR - http://www.scopus.com/inward/record.url?scp=0013025447&partnerID=8YFLogxK
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U2 - 10.1016/0047-2727(94)01422-K
DO - 10.1016/0047-2727(94)01422-K
M3 - Article
AN - SCOPUS:0013025447
SN - 0047-2727
VL - 56
SP - 291
EP - 310
JO - Journal of Public Economics
JF - Journal of Public Economics
IS - 2
ER -