Uncertainty and optimally uniform commodity taxes

Helmuth Cremer, Firouz Gahvari

Research output: Contribution to journalArticlepeer-review


This paper examines the implications of uncertainty for the structure of optimal commodity taxes in the presence of a linear income tax. Consumers face uncertain income and commit to consumption of some goods before the resolution of uncertainty and to others after. Preferences are separable between labor and consumption goods. We prove that optimal commodity taxes are (i) uniform within the category of noncommitted goods if their subutility is logarithmic; (ii) uniform within the two categories if both subutilities are logarithmic; and (iii) nonzero across categories, with the tax rate on precommitted goods being lower than the tax rate on noncommitted goods.

Original languageEnglish (US)
Pages (from-to)156-167
Number of pages12
JournalSouthern Economic Journal
Issue number1
StatePublished - Jul 1999

ASJC Scopus subject areas

  • Economics and Econometrics


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