Optimal Taxation in the Presence of Household Production

Alessandro Balestrino

Chapter Chapter 2 in The Economics of Family Taxation, 2023, pp 15-30 from Springer

Abstract: Abstract At the end of Chap. 1 , we stressed that the main role of commodity taxation in a Pareto-optimal second-best tax system is an efficiency one: it counteracts the distortions away from market work and towards leisure inevitably brought about by the income tax as it performs its redistributive role. Within the limits of the standard model, there is a significant exception, known as the Atkinson-Stiglitz theorem (Atkinson and Stiglitz 1976) which states that if the government can implement a non-linear income tax and if commodities are weakly separable from leisure in the utility function, then commodity taxes are not needed for attaining a second-best Pareto optimum.

Date: 2023
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DOI: 10.1007/978-3-031-28170-9_2

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