Optimal indirect taxation with a restricted number of tax rates

Pascal Belan () and Stephane Gauthier

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Abstract: This paper analyzes the optimal structure of indirect taxation when the number of available tax rates is smaller than the number of taxable commodities. Such a constraint requires to choose the levels of tax rates and the groups of commodities that will be taxed at equal rates (or exempted). In a partial equilibrium framework, with a single agent and a low amount of tax collection, it is shown that the process of allocation of commodities to groups depends on both price elasticities and consumption spendings. Still, the optimal tax structure displays a weak form of the inverse elasticity rule; consumption spendings influence the size of the fiscal base, and may lead to many tax exemptions.

Keywords: Indirect taxation; Commodity grouping; Exemptions (search for similar items in EconPapers)
Date: 2006-08
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00106898v1
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Citations: View citations in EconPapers (5)

Published in Journal of Public Economics, 2006, 90 (6-7), pp.1201-1213. ⟨10.1016/j.jpubeco.2005.10.004⟩

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Journal Article: Optimal indirect taxation with a restricted number of tax rates (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00106898

DOI: 10.1016/j.jpubeco.2005.10.004

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