Public Economics Lectures Part 1: Introduction

Special Case 2: Uniform Taxation
Then immediately obtain
With constant ε xi ,w , τ i
q i
1
x i
τ i = − θ λ
1
∂h i
∂q i
= θ λ
1
∂h i
∂w w
τ i
= θ 1
= θ q i λ ∂h i w λ ε x i ,w
∂w x i
is constant → uniform taxation
Corlett and Hague (1953): 3 good model, uniform tax optimal if all
goods are equally complementary with labor (and labor is untaxed)
More generally, lower taxes for goods complementary to labor
Different intuition than Goulder and Williams (2003) argument for
why taxing goods complementary with labor is undesirable
Here, higher substitutability with labor ⇒ higher own price elasticity;
no pre-existing tax on labor
Public Economics Lectures () Part 4: Optimal Taxation 20 / 121