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Optimal Tax Base with Administrative Fixed Costs

Author

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  • Stéphane Gauthier

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

This note characterizes the optimal base for commodity taxation in the presence of administrative fixed costs varying across goods. For low tax rates, the optimal base only comprises commodities whose discouragement index is greater than the ratio of their administrative costs to the tax they yield. An illustration with UK data shows that a category of goods should be taxed only if the revenue generated on this category is at least ten times greater than its administrative fixed cost. The cost imputable to the category of goods taxed at the standard rate would be at most 6 percent of total VAT revenue.The administration cost associated with categories of goods currently tax free could justify exemption.

Suggested Citation

  • Stéphane Gauthier, 2013. "Optimal Tax Base with Administrative Fixed Costs," Post-Print hal-00731095, HAL.
    • Handle: RePEc:hal:journl:hal-00731095
    DOI: 10.1007/s10797-012-9254-8
    Note: View the original document on HAL open archive server: https://hal.science/hal-00731095
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    References listed on IDEAS

    as
    1. Belan, Pascal & Gauthier, Stéphane & Laroque, Guy, 2008. "Optimal grouping of commodities for indirect taxation," Journal of Public Economics, Elsevier, vol. 92(7), pages 1738-1750, July.
    2. Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, vol. 69(3), pages 475-480, June.
    3. Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, vol. 43(2), pages 221-236, November.
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    7. Slemrod, Joel, 1990. "Optimal Taxation and Optimal Tax Systems," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 157-178, Winter.
    8. Wilson, John Douglas, 1989. "On the Optimal Tax Base for Commodity Taxation," American Economic Review, American Economic Association, vol. 79(5), pages 1196-1206, December.
    9. Alm, James, 1996. "What Is an "Optimal'"Tax System?," National Tax Journal, National Tax Association, vol. 49(1), pages 117-33, March.
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    Cited by:

    1. Nicolas Jacquemet & Jason F. Shogren & Adam Zylbersztejn & Stéphane Luchini, 2023. "Commitment to the truth creates trust in market exchange: Experimental evidence," Working Papers halshs-04391214, HAL.
    2. Daron Acemoglu & James A. Robinson, 2017. "The Emergence of Weak, Despotic and Inclusive States," NBER Working Papers 23657, National Bureau of Economic Research, Inc.
    3. Boadway, Robin & Cuff, Katherine, 2022. "A generalization of the Deaton-Hellwig results on uniform commodity taxation," Journal of Public Economics, Elsevier, vol. 214(C).
    4. Robin Boadway & Katherine Cuff, 2023. "The Case for Uniform Commodity Taxation: A Tax Reform Approach," Hacienda Pública Española / Review of Public Economics, IEF, vol. 244(1), pages 79-109, March.

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    More about this item

    Keywords

    indirect taxation; VAT; tax base; administrative costs;
    All these keywords.

    JEL classification:

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

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