Optimal indirect taxation with a restricted number of tax rates

Pascal Belan (1, 2) , Stéphane Gauthier (3, 4)

1 EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative
2 LEN - Laboratoire d'économie de Nantes
3 CREM - Centre de recherche en économie et management
4 CREST-INSEE - Centre de Recherche en Economie et en Statistique

This paper analyzes the optimal structure of indirect taxation when the number of available tax rates is smaller than the number of taxable commodities. Such a constraint requires to choose the levels of tax rates and the groups of commodities that will be taxed at equal rates (or exempted). In a partial equilibrium framework, with a single agent and a low amount of tax collection, it is shown that the process of allocation of commodities to groups depends on both price elasticities and consumption spendings. Still, the optimal tax structure displays a weak form of the inverse elasticity rule; consumption spendings influence the size of the fiscal base, and may lead to many tax exemptions.

Mots clés: Indirect taxation; Commodity grouping; Exemptions

Domaines: Economies et finances

Pascal Belan, Stéphane Gauthier. Optimal indirect taxation with a restricted number of tax rates. Journal of Public Economics, 2006, 90 (6-7), pp.1201-1213. ⟨10.1016/j.jpubeco.2005.10.004⟩. ⟨halshs-00106898⟩