The Case for Uniform Commodity Taxation: A Tax Reform Approach

Generalizing the tax reform approach of Laroque (2005), Kaplow (2006) and Hellwig (2009), we show that for any arbitrary income tax system differential commodity taxation can be Pareto-dominated by a uniform rate with a suitably reformed income tax. Under particular preference specifications, we derive the explicit income tax reforms required in an representative-agent economy and when there is linear progressive, piecewise linear and nonlinear …