Taxing a Commodity with and without Revenue Neutrality: A Calibrated Theoretical Consumer Equilibrium Model
Article
Overview
Research
Identity
Additional Document Info
View All
Overview
abstract
It has long been recognized that taxing a commodity that generates negative
externalities can be used to reduce the consumption of that commodity. A variant
involves the imposition of revenue neutrality but that may alter the tax rate
required to meet a consumption reduction target. We explore the relationships
among the commodity tax rate, the demand and supply elasticities, and the
revenue offsets by calibrating a theoretical consumer equilibrium model and then
recalibrating it with alternative parameter configurations. For each configuration
we simulate equilibrium for three policy scenarios: no neutrality, neutrality
achieved by subsidizing other commodities, and neutrality achieved by income
transfer.