Optimal Taxation under a Consumption Target

Junichi Minagawa and Thorsten Upmann

No 6067, CESifo Working Paper Series from CESifo

Abstract: We consider a government facing a constraint on the total consumption of a specific good with varieties, and formulate an optimal commodity tax problem under a consumption target. We obtain a uniform pricing result (similar to the familiar uniform taxation rule): setting the same consumer price for all varieties constitutes a solution if, and only if, the compensated price elasticities of the varieties with respect to an untaxed good are all equal and non-negative. If, however, this elasticity condition does not hold, the optimal policy is at variance with the well-known inverse elasticity rule and with the Corlett–Hague rule.

Keywords: consumption target; Corlett-Hague Rule; inverse elasticity rule; optimal commodity taxation; uniform taxation (search for similar items in EconPapers)
JEL-codes: H21 H23 (search for similar items in EconPapers)
Date: 2016
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