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On the Desirability of Commodity Taxation Even When Income Taxation is Not Optimal Louis Kaplow, Harvard Law School Subsequently published in Journal of Public Economics, Vol. 90, Issue 6-7, August 2006, 1235-1250. Download the Paper (PDF format) - March 29, 2004 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing. ABSTRACT: An important result due to Atkinson and Stiglitz (1976) is that differential commodity taxation is not optimal in the presence of an optimal nonlinear income tax (given weakseparability of utility between labor and all consumption goods). This article demonstrates that their conclusion holds regardless of whether the income tax is optimal. In particular, given any commodity tax and income tax system, differential commodity taxation can be eliminated in amanner that results in a Pareto improvement. Also, differential commodity taxation can be proportionally reduced so as to generate a Pareto improvement. In addition, for commodity taxreforms that do not eliminate or proportionally reduce differential taxation, a simple efficiency condition is offered for determining whether a Pareto improvement is possible. SUGGESTED CITATION: Louis Kaplow, "On the Desirability of Commodity Taxation Even When Income Taxation is Not Optimal" (March 29, 2004). Harvard Law School. Harvard Law School John M. Olin Center for Law, Economics and Business Discussion Paper Series. Paper 470. http://lsr.nellco.org/harvard/olin/papers/470 | REPOSITORY HOME  | SEARCH  | MY ACCOUNT  | NELLCO HOME | Powered by bepress.