International Private Transfers and Optimal Tax Structure in Developing Economies

Ikuho Kochi () and Ra¨²l Alberto Ponce Rodr¨ªguez ()
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Ra¨²l Alberto Ponce Rodr¨ªguez: Universidad Aut¨®noma de Ciudad Ju¨¢rez, Heroico Colegio Militar y Av. Universidad No. 3775, zip: 32310, Ciudad Ju¨¢rez, MEXICO
Authors registered in the RePEc Author Service: Raul Alberto Ponce Rodriguez

Review of Economics & Finance, 2016, vol. 6, 13-26

Abstract: In this paper we examine the optimal tax structure for a developing economy with international inter-family transfers. Our analysis characterizes conditions to identify the main determinants of the design of both the commodity and income tax. We find that these determinants change depending on the signs and values of the direct and cross price elasticities. A benchmark result of the literature suggests that the aggregate level of consumption, the weighted tax burdens from consumption and the efficiency costs of commodity taxes are the main determinants of a commodity tax. Our analysis suggests additional determinants, such as the aggregate level of income, the socially weighted aggregate level of labor income and the weighted aggregate elasticity of the supply of labor and income. A similar conclusion is obtained for the determinants of the income tax. Our analysis also provides a rationale to limit the use of the commodity tax and to increase the size of the income tax on the tax structure of this economy.

Keywords: Equity; Altruism; Remittances; Efficiency; Optimal tax structure (search for similar items in EconPapers)
JEL-codes: D63 D64 F24 H21 (search for similar items in EconPapers)
Date: 2016
Note: Acknowledgments: This article is a product of the research project: Red Internacional de An¨¢lisis y Evaluaci¨®n de Pol¨ªticas Econ¨®micas y Sociales, financed by PRODEP. Authors would also like to thank two anonymous reviewers for their suggestions.
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