On the role of the production and consumption assumptions for optimum taxation

The sensitivity of optimum tax rates to a variety of factors has sustained many different lines of enquiry. This paper attempts to demonstrate by computational procedures the role of the production and consumption–leisure assumptions in the light of recent research. In particular the work of Stern will be extended to provide an assessment of the Allen analysis. It will be shown that optimum negative marginal tax rates are no longer a curiousity and that our production and consumption–leisure assumptions are of considerable importance for variable wage tax models.