Optimal Taxation of Indistinguishable Activities

Jacob Goldin, Sebastian Koehne and Nicholas Lawson

No 35938, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Optimal tax policy frequently prescribes different tax treatments for activities that are difficult in practice for tax administrators to distinguish, such as expenditures undertaken for business versus personal purposes. We study the optimal design of income tax deductions for such expenditures under the assumption that a common deduction rate must be applied to both forms of the expenditure. The Pareto optimal common deduction turns on the relative compensated spending response for each margin, weighted by the income tax wedge. We also characterize the welfare gain from distinguishing between the two expenditure forms as a harmonic mean of the compensated responses. We illustrate both results with an application to air travel expenses.

JEL-codes: H0 H21 H26 (search for similar items in EconPapers)
Date: 2026-10
New Economics Papers: this item is included in nep-des
Note: PE
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w35938.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:35938

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w35938
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().