Tax reforms when utility is composed of additive functions
Working paper
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Date
1993-01Metadata
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- Discussion Papers [1002]
Abstract
The paper discusses how a tax reform should be designed when utility can be written as additive, separable in an additive sub function, or nested additive. General characterization results can be simplified considerably in these cases. When utility is additive, an (income) inelastic good with a low tax rate is a candidate for higher taxation if it is compared with a high-tax good. If it is compared with a low-tax good, it is a candidate for lower taxation. Labor income is also a candidate for lower taxation. Similar, but more qualified conclusions are reached when utility is separable in an additive sub function, or it is nested additive.