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Optimal taxation with consumption time as a leisure or labor substitute

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  • Boadway, Robin
  • Gahvari, Firouz

Abstract

This paper studies the optimal commodity taxation problem when time taken in consumption is a perfect substitute for either labor or leisure. It shows that while labor substitutability affects the optimal tax structure, leisure substitutability leaves the classical optimal tax results intact. In the Ramsey tax framework with linear income taxes, whether the consumers have the same or different earning abilities, labor substitutes tend to be taxed at a higher rate than leisure substitutes with the tax differential being increasing in consumption time. This is not necessarily the case when one allows for nonlinear income taxation.
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  • Boadway, Robin & Gahvari, Firouz, 2006. "Optimal taxation with consumption time as a leisure or labor substitute," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1851-1878, November.
    • Handle: RePEc:eee:pubeco:v:90:y:2006:i:10-11:p:1851-1878
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    Cited by:

    1. Sam Allgood, 2009. "The Collective Household, Household Production and Efficiency of Marginal Reforms," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(5), pages 749-771, October.
    2. Cristian F. Sepulveda, 2019. "Time-saving Goods, Time Inequalities, and Optimal Taxation," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1902, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Lu, Chun-Hui & Ueng, K.L. Glen & Chang, Juin-Jen, 2022. "Consumption indivisibility and the optimal tax mix," Economic Modelling, Elsevier, vol. 112(C).
    4. Jukka Pirttilä & Håkan Selin, 2011. "Tax Policy and Employment: How Does the Swedish System Fare," Working Papers 267, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    5. Justina Klimaviciute, 2024. "(No) time to be healthy: Optimal policy with time and monetary investments in health," Health Economics, John Wiley & Sons, Ltd., vol. 33(3), pages 410-431, March.
    6. Jorge Martinez-Vazquez & Richard M. Bird, 2011. "Value-Added Tax: Onward and Upward?," Chapters, in: Emilio Albi & Jorge Martinez-Vazquez (ed.), The Elgar Guide to Tax Systems, chapter 6, Edward Elgar Publishing.
    7. Boadway, Robin & Song, Zhen, 2016. "Indirect taxes for redistribution: Should necessity goods be favored?," Research in Economics, Elsevier, vol. 70(1), pages 64-88.
    8. Lim Jean & Rodríguez-Zamora Carolina, 2010. "The Optimal Tax Rule in the Presence of Time Use," Working Papers 2010-05, Banco de México.
    9. Marcelo Arbex & Enlinson Mattos, 2015. "Optimal sales tax rebates and tax enforcement consumers," Oxford Economic Papers, Oxford University Press, vol. 67(2), pages 479-493.
    10. Robin Boadway, 2012. "Recent Advances in Optimal Income Taxation," Hacienda Pública Española / Review of Public Economics, IEF, vol. 200(1), pages 15-39, March.
    11. Peter Sørensen, 2007. "The theory of optimal taxation: what is the policy relevance?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(4), pages 383-406, August.
    12. Peña, Guillermo, 2021. "Leisure as a complement of banking: Taxing financial services for reducing leisure time?," MPRA Paper 109942, University Library of Munich, Germany.
    13. Cristian F. Sepulveda, 2022. "Time-saving goods, time inequalities and optimal commodity taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(1), pages 84-109, February.
    14. Spencer Bastani & Firouz Gahvari & Luca Micheletto, 2023. "Nonlinear taxation of income and education in the presence of income‐misreporting," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(4), pages 679-726, August.
    15. Chang, Juin-jen & Liu, Chia-ying & Wang, Wei-neng, 2018. "Conspicuous consumption and trade unionism," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 350-366.
    16. Borger, Bruno De, 2011. "Optimal congestion taxes in a time allocation model," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 79-95, January.
    17. C. Benassi & E. Randon, 2015. "Optimal Commodity Taxation and Income Distribution," Working Papers wp1001, Dipartimento Scienze Economiche, Universita' di Bologna.
    18. Antonio Russo, 2015. "Pricing of Transport Networks, Redistribution, and Optimal Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(5), pages 605-640, October.

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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