Optimal taxation under a consumption target

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Optimal Taxation under a Consumption Target Terms of use: Documents in EconStor may AbstractWe 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 wellknown inverse elasticity rule and with the Corlett-Hague rule.JEL-Codes: H210, H230.

The generalised anti-inverse elasticity rule: An existence result

“…We next show that the first-order conditions derived here have the same form as those in the model of Minagawa and Upmann (2018). Thus, the generalised anti-inverse elasticity result mentioned above applies here as well, and it is indeed optimal.…”

“…Remark 1. Equation (3) has the same form as equation ( 2) in Minagawa and Upmann (2018). Thus, the main taxation rule obtained there applies here as well.…”

“…113-14). But in the case considered by Minagawa and Upmann (2018) this issue is particularly significant as their result is contrary to standard taxation rules, which might raise suspicion on the optimality of that first order taxation rule.…”

“…We consider a government facing a given consumption target for a group of commodities (such as different types of fuel), and explore how it should set taxes and subsidies on the commodities to accomplish that target. Minagawa and Upmann (2018) formulated an optimal commodity taxation model under such a consumption target where non-compliance with the target is allowed: a government chooses the consumer prices for a group of commodities to maximise consumer welfare minus the deviation cost of missing the target for the total consumption of the commodities. In that paper, the authors obtained an unconventional taxation rule: the generalised anti-inverse elasticity result, saying that higher prices should be charged for commodities with high price elasticities of total demand.…”