How Should Consumption Be Taxed?

Spencer Bastani and Sebastian Koehne

FinanzArchiv: Public Finance Analysis, 2024, vol. 80, issue 3, 259-302

Abstract: We review the theoretical justification for consumption taxes in advanced economies, providing a systematic review of the extensive public finance literature that examines how goods and services should be taxed. Our discussion focuses on both the determinants of the optimal level of consumption taxation relative to other taxes, as well as the optimal differentiation of taxes across goods and services. We blend classical public finance results, recent developments in the optimal tax literature, and practical considerations. The aim is to provide guidance to academics and policymakers on the main trade-offs in consumption taxation and to highlight important areas where further research is needed.

Keywords: taxation; consumption; commodity; labor; capital; wealth (search for similar items in EconPapers)
JEL-codes: H21 H24 (search for similar items in EconPapers)
Date: 2024
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Working Paper: How Should Consumption Be Taxed? (2022)
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DOI: 10.1628/fa-2024-0012

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