Optimal commodity taxation with costly noncompliance

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Because noncompliance hos efficiency and equity implications, it should be a concern in the design of the commodity tax structure. This article derives the optimal commodity tax conditions and modifications to their standard interpretation when consumers engage in costly border crossing to evade local taxes. It presents a model of costly noncompliance behavior and a modified version of Roy s theorem describing the effect on indirect utility of a tax change when cross-border shopping occurs. This modified Roys theorem permits the inverse elasticity rule, proportionate shrinkage rule, and covariance interpretation of the optimal tax conditions to be adapted to the case of costly noncompliance.

Original languageEnglish (US)
Title of host publicationInternational Economic Integration and Domestic Performance
PublisherWorld Scientific Publishing Co. Pte Ltd
Pages3-18
Number of pages16
ISBN (Electronic)9789813141094
ISBN (Print)9789813141087
DOIs
StatePublished - Feb 27 2017

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)

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  • Cite this

    Lovely, M. E. (2017). Optimal commodity taxation with costly noncompliance. In International Economic Integration and Domestic Performance (pp. 3-18). World Scientific Publishing Co. Pte Ltd. https://doi.org/10.1142/9789813141094_0001