Some Implications of Quality Differentials for Optimal Taxation

Gareth Myles ()

Economic Journal, 1987, vol. 98, issue 390, 148-60

Abstract: It is shown that in models where quality choice acts as a signal of income level, utilitari an tax schemes will tend toward the subsidization of high quality and hence exaggerate inequalities. This effect is attributable to the no n-concavity of the indirect utility function caused by the existence of the quality differentiated product. The implication for income tax is that the optimal linear schedule may have a negative marginal rat e. Copyright 1987 by Royal Economic Society.

Date: 1987
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