Linear Commodity Tax Reform and Optimal Commodity Taxes under Partial Separability

Yukihiro Nishimura ()
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Yukihiro Nishimura: Graduate School of Economics,Osaka University

No 25-09-Rev2., Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Under a regime of nonlinear income tax and fully linear commodity taxes, we may not be able to construct a welfare-improving tax reform towards uniform taxes on a subset of commodities. Furthermore, distortions of production that alter relative wages can improve welfare by influencing mimickers’ consumption choices and thus relaxing incentive compatibility constraints. We then identify conditions for optimal uniform taxation within separated consumption groups. Specifically, to neutralize heterogeneous cross-substitution effects across income classes, uniform commodity taxes require parallel income effects, so the restrictions on the Engel curves cannot be dispensed with even under nonlinear income taxation.

Keywords: Uniform commodity taxes; Tax reform; Income effects (search for similar items in EconPapers)
JEL-codes: H21 H24 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2025-08, Revised 2026-01
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