On Directions of Commodity Tax Reform in the Presence of a Given Non-linear Income Tax Schedule

C. C. Yang and Hans Haller

Canadian Journal of Economics, 1993, vol. 26, issue 2, 469-80

Abstract: This paper analyzes directions of commodity tax reform in the presence of a given, possibly nonlinear, income tax schedule. Two prominent policy prescriptions are reexamined. First, the welfare effect of a proportional reduction of all commodity price distortions turns out to be sensitive to nonlinearity. Secondly, the welfare implications of tax changes based on substitutability or complementarity between labor and commodities remain valid in the presence of nonlinearity. Within the scope of the model, the authors also discuss the question raised in the classic of W. J. Corlett and D. C. Hague (1953)--which commodity taxes should supplement the income tax?

Date: 1993
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