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Using distance functions to understand interest taxation

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  • John Burbidge

Abstract

One of Terence Gorman's insights was that if one wants to derive rules about optimal commodity tax rates (or prices) one should treat quantities consumed as the instruments. This paper builds on Angus Deaton's development of this idea using distance functions. I identify necessary and sufficient conditions for uniform commodity taxation in a static model and the efficiency of various tax structures in a life-cycle model. One implication is that the optimal interest tax rate may be higher when ordinary or compensated labour supply elasticities are lower.

Suggested Citation

  • John Burbidge, 2015. "Using distance functions to understand interest taxation," Canadian Journal of Economics, Canadian Economics Association, vol. 48(3), pages 903-923, August.
    • Handle: RePEc:cje:issued:v:48:y:2015:i:3:p:903-923
    DOI: 10.1111/caje.12162
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    Cited by:

    1. John Burbidge, 2018. "Using distance functions to derive optimal progressive earnings tax and commodity tax structures," Working Papers 1808, University of Waterloo, Department of Economics, revised 12 Nov 2018.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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