Randomization of commodity taxes: An expenditure minimization approach |
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| Institution: | 1. Department of International Trade and Finance, School of Management and Economics, Beijing Institute of Technology, Beijing, China;2. Collaborative Innovation Center for Ecological Economics and Management, Anhui University of Finance and Economics, Anhui Bengbu, PR China;3. Faculty of Humanities and Social Sciences, The University of Queensland, Australia.;4. Institute of Business Research and CFVG, University of Economics Ho Chi Minh City, Viet Nam;1. DRM, UMR CNRS 7088, Paris-Dauphine University, Place du Maréchal de Lattre de Tassigny, 75016 Paris, France;2. Kedge Business School, 680 cours de la Libération, 33405 Talence, France |
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| Abstract: | Using an expenditure minimization approach, necessary and sufficient conditions for local random taxation are obtained in terms of the curvature of the compensated demand function, so that intuition from excess burden analysis can be applied. Major findings include: (1) random taxation is locally optimal if the compensated demand function is sufficiently convex; (2) horizontally equitable taxation is locally optimal if the compensated demand function is concave, and (3) local randomization is not optimal if the tax revenue requirement is sufficiently close to zero or to any local maximum. We also derive an inverse elasticity characterization of the optimal random tax structure. |
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