ABSTRACT
Key concepts: efficient taxation; Corlett-Hague result; inverse elasticity formulae; redistributive indirect taxation; optimal idirect taxation.
13.1 INTRODUCTION
In this chapter we study commodity taxation. It is implicit, therefore, that we take the desirability of commodity taxation for granted. This as well as the thorny issue of the optimal mix of commodity and income taxes are discussed in later chapters. In this chapter we collect and discuss some key results in the theory of commodity taxation. Our analysis here is initially confined to efficiency issues - we think of the best set of taxes to gather a specific amount of tax revenue where 'best' is defined as levying least excess burden on the 'representative' tax payer. We also raise issues of redistribution between consumers but it soon becomes clear that the issue of redistribution is best addressed through direct taxation. Later we discuss, in some detail, a popular indirect tax - the value added tax or VAT.
