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The Role of Selectivity in Consumption Taxation: Should Consumption Taxes be Uniform?

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  • Creedy, J.

    (University of Melbourne, Parkville, VIC)

Abstract

This paper examines the role of selectivity in a general consumption tax system. The relevant results from the optimal tax literature are briefly reviewed. Examples are given off the role of exemptions in a general equilibrium model in which all the conditions for uniformity are satisfied except that individuals have different tastes. Exemptions are shown to increase the value of social welfare, using a welfare function which displays inequality aversion. Furthermore, the use of exemptions, combined with a higher rate applied to goods which form a larger proportion of expenditure for high income groups, is examined using a simplified tax and transfer system applied to a random sample of individuals. It is found that the exemption of food has the largest effect, but that non-uniformity is a ‘blunt’ redistributive instrument.

Suggested Citation

  • Creedy, J., 1993. "The Role of Selectivity in Consumption Taxation: Should Consumption Taxes be Uniform?," Economic Analysis and Policy, Elsevier, vol. 23(1), pages 1-13.
    • Handle: RePEc:eee:ecanpo:v:23:y:1993:i:1:p:1-13
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    Cited by:

    1. John Freebairn, 1997. "Options for Reforming Australia’s Indirect Taxes," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 4(2), pages 165-176.
    2. John Freebairn, 1997. "Options and Prospects for Taxation Reform," The Economic Record, The Economic Society of Australia, vol. 73(223), pages 373-386, December.
    3. Lisa Cameron & John Creedy, 1995. "Indirect Tax Exemptions and the Distribution ot Lifetime Income: A Simulation Analysis," The Economic Record, The Economic Society of Australia, vol. 71(1), pages 77-87, March.

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