Marginal and non-marginal commodity tax reforms with rank two and rank three demographic demand systems

Author: Ray, R

Source: Oxford Economic Papers, Volume 51, Number 4, October 1999 , pp. 689-712(24)

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Abstract:

This paper shows that the insensitivity of marginal commodity tax reforms to demand specification does not extend to the non-marginal case. The size of the tax change has a sharp impact on commodity tax reforms. Unlike price effects, neither household composition nor quadratic Engel curves alters significantly the direction of tax change. The first order approximation overestimates the welfare cost of tax change, and the bias increases sharply with the size of the change. The quality of the approximation also deteriorates with increasing inequality aversion making a Rawlsian less likely than an utilitarian to use the marginal framework.

Document Type: Research article

Publication date: 1999-10-01

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Oxford Economic Papers is a general economics journal, publishing refereed papers in economic theory, applied economics, econometrics, economic development, economic history, and the history of economic thought. It occasionally publishes survey articles in addition to original papers. Books are not reviewed, but substantial review articles are considered. The journal occasionally publishes survey articles in addition to original papers, and occasionally publishes special issues or symposia.