Optimal taxation with household production

Kleven, Henrik Jacobsen; Richter, Wolfram F.; Sørensen, Peter Birch

doi:10.1093/oep/52.3.584

“…These research summaries strongly suggest that the impact of taxes 3 Boskin (1975) provides an early analysis of tax incidence and efficiency in a two-sector general equilibrium model with market and home production. Sandmo (1990), Piggott and Whalley (1998) and Kleven et al (2000) analyze optimal taxation in models with home production. McGrattan et al (1997) estimate an equilibrium business cycle model with home production and use it to evaluate the effects of distortionary taxation.…”

Section: Household Production Underground Activity and Welfare-statementioning

confidence: 99%

Tax-effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich Country Comparisons

Davis¹,

Henrekson²

2005

Labour Supply and Incentives to Work in Europe

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractGuided by a simple theory of task assignment and time allocation, we investigate the long run response to national differences in tax rates on labor income, payrolls and consumption. The theory implies that higher tax rates reduce work time in the market sector, increase the size of the shadow economy, alter the industry mix of market activity, and twist labor demand in a way that amplifies negative effects on market work and concentrates effects on the less skilled.We also describe conditions whereby cross-country OLS regressions yield unbiased estimates of the total effect of taxes, inclusive of indirect effects that work through government spending responses to tax revenues. Regressions on rich-country samples in the mid 1990s indicate that a unit standard deviation tax rate difference of 12.8 percentage points leads to 122 fewer market work hours per adult per year, a drop of 4.9 percentage points in the employment-population ratio, and a rise in the shadow economy equal to 3.8 percent of GDP. It also leads to 10 to 30 percent lower employment and value added shares in (a) retail trade and repairs, (b) eating, drinking and lodging, and (c) a broader industry group that includes wholesale and motor trade.JEL Classification: D13, H24, J22

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“…Therefore, untaxable home production does not change this result. Since almost all empirical studies find home and market services to be substitutes, the results from the theoretical analysis 7 The result for the tax rate on market services is thus an extension of the results in Atkinson and Stiglitz (1976), Corlett and Hague (1953), Sandmo (1990), Kleven et al (2000) and Kleven (2004). show that services should be taxed at a lower rate than goods and that the return to home capital should be taxed at a strictly positive rate.…”

Section: Introductionmentioning

confidence: 69%

Optimal taxation with home production

Olovsson

¹

2015

Journal of Monetary Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Working Paper series presents reports on matters in the sphere of activities of the Riksbank that are considered to be of interest to a wider public. The papers are to be regarded as reports on ongoing studies and the authors will be pleased to receive comments. produce household services. The optimal tax rate on services is substantially lower than the tax rate on goods. Specifically, the planner cannot tax home production directly and instead lowers the tax rate on market services to increase the relative price of home production. The optimal tax rate on the return to home capital is strictly positive and the welfare gains from switching to optimal taxes are large. Terms of use: Documents in

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“…The empirical importance of household production for the theory of optimum tax policy has been discussed in previous studies such as Boskin (1975), Sandmo (1990), Kleven et al (2000), Anderberg and Balestrino (2000), and Kleven (2004). Numerical simulations quantifying the effects can be seen in Piggott and Whalley (1996), Piggott and Whalley (2001), and Iorwerth and Whalley (2002).…”

Section: Introductionmentioning

confidence: 94%

“…The model is similar to that of Iorwerth andWhalley (2002) -IW henceforth-andKleven et al (2000), but we write it as a decentralized equilibrium problem because it makes the model suitable to easily accommodate more than just one consumer. A detailed account of the model can be found in the Appendix.…”

Section: The Modelmentioning

confidence: 99%

“…However, the government may wish to sacrifice some efficiency in exchange for a more equitable distribution of income. Kleven et al (2000) emphasize the ambiguous implications that heterogeneity across households could have for the optimal taxation of services, which is partly due to the different weight of household production in high-income and low-income households. A distributional theoretical framework in which households can substitute time spent on home production for market expenditures was sketched by Sandmo (1990), but no conclusive empirical support in general equilibrium computational techniques has been found.…”

Section: Fiscal Experiments For the Spanish Economymentioning

confidence: 99%

See 1 more Smart Citation

Time Use and Food Taxation in Spain

Ferri

¹

,

Uriel²,

Moltó³

2009

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We evaluate the welfare impact of changing VAT on food in a context in which households can produce home meals for own consumption that compete with meals served in restaurants. Home production of meals requires the combination of food and time inputs. The fiscal treatment in home production of both the inputs and the final product differs from market production of meals, generating different channels of inefficiency. We calibrate a simple general equilibrium model for the Spanish economy which identifies three types of consumers according to their income and simulate the effects of some experiments related to how food is taxed. The results suggest that if we focus only on aggregate welfare, the model fails to capture important distributional issues. We also present some caveats to previous simulation results on aggregate welfare that are related to the importance of the elasticity of substitution between food and time in the household production of meals.JEL: C68, H21, H22, D13

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Optimal taxation with household production

Cited by 74 publications

References 7 publications

Tax-effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich Country Comparisons

Tax-effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich Country Comparisons

Optimal taxation with home production

Time Use and Food Taxation in Spain

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