Supplementary Commodity Taxes, Labor Tax on the Middle Class, and the Tax-mix

Yukihiro Nishimura ()
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Yukihiro Nishimura: Osaka University and CESifo

No 25-08, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Given that the incentive consideration reduces the scope for redistribution, Mirrlees (1976, Optimal tax theory: a synthesis. Journal of Public Economics 6, 327‒358) emphasized the redistributive effects of commodity taxes (which include capital income tax), which reduces the effective tax wedge on labor income. We revert to the unidimensional case to show that the optimal labor wedge can become higher after the introduction of the optimal commodity taxes/subsidies when labor complements are subsidized. This is partly because supplementary commodity taxes are not increasing in ability as Mirrlees (1976) thought. Among the classic results, decreasing marginal taxes on the middle class, including the mode of the income distribution, remains valid with commodity taxes and without separability in the utility function.

Keywords: Commodity tax; Income tax; Marginal income tax rates (search for similar items in EconPapers)
JEL-codes: D63 H21 H24 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2025-08
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-upt
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