Tax avoidance and commodity tax differentiation

Résumé

We analyze the optimal combination of direct and indirect taxes in the presence of tax avoidance. Proportional commodity taxes remain part of the optimal tax structure when avoidance is possible, even when the Atkinson–Stiglitz conditions hold. Taxing consumption, despite avoidance, enhances the screening of unobserved productivity relative to income taxation alone. Under weak separability and homothetic subutility, optimal commodity taxes are positive and uniform. With non-homothetic preferences, uniformity may not hold, and the optimal differentiation between luxuries and necessities depends on the distribution of productivity.

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Codes JEL

Référence

Georges Casamatta et Helmuth Cremer, « Tax avoidance and commodity tax differentiation », Economics Letters, vol. 257, n° 112714, décembre 2025.