Premium
Using distance functions to understand interest taxation
Author(s) -
Burbidge John
Publication year - 2015
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12162
Subject(s) - commodity , economics , econometrics , microeconomics , tax rate , interest rate , mathematical economics , labour supply , macroeconomics , market economy
One of Terence Gorman's insights was that if one wants to derive rules about optimal commodity tax rates (or prices) one should treat quantities consumed as the instruments. This paper builds on Angus Deaton's development of this idea using distance functions. I identify necessary and sufficient conditions for uniform commodity taxation in a static model and the efficiency of various tax structures in a life‐cycle model. One implication is that the optimal interest tax rate may be higher when ordinary or compensated labour supply elasticities are lower.