Optimal tax mix with merit goods

Maria Racionero

No 1998004, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper deals with optimal taxation in a two-class economy with two private commodities and labour. We derive optimal nonlinear income and linear commodity taxes in the presence of merit goods. We formulate merit good arguments via a pathology of individual choice. We assume weak separability between consumption and leisure and show that the standard optimal tax results are modified due to merit good considerations. We first find a subsidy on the merit good. Secondly, optimal income marginal tax rates are also shown to dioeer from the standard literature: it is positive on high-ability individuals and on low-ability individuals it is ambiguous because of a dampening eoeect due to merit good considerations. Finally, we derive the effective marginal tax rates

Keywords: Merit goods; Non-linear income taxation (search for similar items in EconPapers)
JEL-codes: H21 H41 (search for similar items in EconPapers)
Date: 1998-01-01
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Related works:
Journal Article: Optimal Tax Mix with Merit Goods (2001)
Working Paper: Optimal tax mix with merit goods (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1998004

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