Supplementary Commodity Taxes, Labor Tax, and the Tax-mix

Yukihiro Nishimura ()
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Yukihiro Nishimura: Graduate School of Economics, Osaka University

No 25-08-Rev., Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This paper extends the Atkinson‒Stiglitz Theorem by relaxing the assumption of weak separability of preferences. We show that, to supplement income taxation, the optimal commodity tax burden relative to disposable income is regressive. This regressivity reinforces the classic U-shaped pattern of optimal labor income taxation. Moreover, when goods are complementary to labor, e.g., child care, the overall marginal labor tax burden increases once commodity taxes are introduced; when they are substitutes, it decreases. Under the Rawlsian objective, these variations in marginal tax rates have stronger effects at lower income levels.

Keywords: Commodity tax; Income tax; Marginal income tax rates (search for similar items in EconPapers)
JEL-codes: D63 H21 H24 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2025-08, Revised 2026-03
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