A Big Data Approach to Optimal Sales Taxation

Christian Baker, Jeremy Bejarano, Richard Evans, Kenneth Judd and Kerk L. Phillips
Additional contact information
Christian Baker: Department of Economics, Brigham Young University
Jeremy Bejarano: Department of Economics, University of Chicago
Kerk L. Phillips: Department of Economics, Brigham Young University

No 2014-03, BYU Macroeconomics and Computational Laboratory Working Paper Series from Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory

Abstract: We characterize and demonstrate a solution method for an optimal commodity (sales) tax problem consisting of multiple goods, heterogeneous agents, and a nonconvex policy maker optimization problem. Our approach allows for more dimensions of heterogeneity than has been previously possible, incorporates potential model uncertainty and policy objective uncertainty, and relaxes some of the assumptions in the previous literature that were necessary to generate a convex optimization problem for the policy maker. Our solution technique involves creating a large database of optimal responses by different individuals for different policy parameters and using ``big data'' techniques to compute policy maker objective values over these individuals. We calibrate our model to the United States and test the effects of a differentiated optimal commodity tax versus a flat tax and the effect of exempting a broad class of goods (services) from commodity taxation. We find that only a potentially small amount of tax revenue is lost for a given societal welfare level by departing from an optimal differentiated sales tax schedule to a uniform flat tax and that there is only a small loss in revenue from exempting a class of goods such as services in the United States.

Keywords: lOptimal tax; sales tax; commodity tax; big data; robustness (search for similar items in EconPapers)
JEL-codes: C61 C63 D31 E62 H21 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2014-03
New Economics Papers: this item is included in nep-cmp, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://docs.google.com/file/d/0B6KGaihAO5TJV3huR3ljSmYtcHM/edit First version, 2014 (application/pdf)

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Working Paper: A Big Data Approach to Optimal Sales Taxation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:byu:byumcl:201403

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