Optimal tax base with administrative fixed costs
- Stéphane Gauthier
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This note characterizes the optimal base for commodity taxation in the presence of administrative fixed costs varying across goods. For low tax rates, the optimal base only comprises commodities whose discouragement index is greater than the ratio of their administrative costs to the tax they yield. An illustration with UK data shows that a category of goods should be taxed only if the revenue generated on this category is at least ten times greater than its administrative fixed cost. The cost imputable to the category of goods taxed at the standard rate would be at most 6 percent of total VAT revenue. The administration cost associated with categories of goods currently tax-free could justify exemption.
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- Optimal tax base with administrative fixed costs
International Tax and Public Finance
Volume 20, Issue 6 , pp 961-973
- Cover Date
- Print ISSN
- Online ISSN
- Springer US
- Additional Links
- Indirect taxation
- Tax base
- Administrative costs
- Industry Sectors
- Author Affiliations
- 1. Paris School of Economics and University of Paris 1, 106-112, bd de l’Hôpital, 75013, Paris, France