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Marginal and non-marginal commodity tax reforms with rank two and rank three demographic demand systems
journal contribution
posted on 2023-05-16, 11:52 authored by Ray, RThis paper shows that the insensitivity of marginal commodity tax reforms to demand specification does not extend to the non-marginal case. The size of the tax change has a sharp impact on commodity tax reforms. Unlike price effects, neither household composition nor quadratic Engel curves alters significantly the direction of tax change. The first order approximation overestimates the welfare cost of tax change, and the bias increases sharply with the size of the change. The quality of the approximation also deteriorates with increasing inequality aversion making a Rawlsian less likely than an utilitarian to use the marginal framework.
History
Publication title
Oxford Economic PapersVolume
51Issue
4Pagination
689-712ISSN
0030-7653Department/School
TSBEPublisher
Oxford University PressPlace of publication
OxfordRepository Status
- Restricted