Uncertainty, optimal taxation and the direct versus indirect tax controversy

Helmuth Cremer, Firouz Gahvari

Research output: Contribution to journalArticle

Abstract

This paper examines how the presence of uncertainty affects the design of tax policy when both indirect taxes and a general income tax are available to the government. 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 proves that contrary to Atkinson and Stiglitz's (1976) result, differential commodity taxation remains a useful instrument of optimal tax policy even if preferences are separable between labour and produced goods.
Original languageEnglish (US)
Pages (from-to)1165-1179
JournalEconomic Journal
Volume105
Issue number432
DOIs
StatePublished - 1995

Keywords

  • income taxes
  • optimal taxation
  • commodities
  • direct taxes
  • indirect taxes
  • economic uncertainty
  • tax allocation
  • labor supply
  • public economics

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