Optimal taxation and public provision for poverty reduction

Research output: Contribution to journalArticleScientificpeer-review

Researchers

  • Ravi Kanbur
  • Tuuli Paukkeri
  • Jukka Pirttilä
  • Matti Tuomala

Research units

  • Cornell University
  • MTT Agrifood Research Finland
  • Tampere University

Abstract

The existing literature on optimal taxation typically assumes there exists a capacity to implement complex tax schemes, which is not necessarily the case for many developing countries. We examine the determinants of optimal redistributive policies in the context of a developing country that can only implement linear tax policies due to administrative reasons. Further, the reduction of poverty is typically the expressed goal of such countries, and this feature is also taken into account in our model. We derive the optimality conditions for linear income taxation, commodity taxation, and public provision of private and public goods for the poverty minimization case and compare the results to those derived under a general welfarist objective function. We also study the implications of informality on optimal redistributive policies for such countries. The exercise reveals non-trivial differences in optimal tax rules under the different assumptions.

Details

Original languageEnglish
Pages (from-to)64–98
Number of pages35
JournalINTERNATIONAL TAX AND PUBLIC FINANCE
Volume25
Issue number1
Early online date27 Apr 2017
Publication statusPublished - 2018
MoE publication typeA1 Journal article-refereed

    Research areas

  • Commodity taxation, Income taxation, Poverty, Public good provision, Redistribution

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