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International Tax and Public Finance

, Volume 15, Issue 3, pp 274–296 | Cite as

Optimal commodity taxation with duty-free shopping

  • Vidar Christiansen
  • Stephen SmithEmail author
Article
  • 195 Downloads

Abstract

International travellers are frequently offered the opportunity to purchase a certain quantity of goods duty-free. Individuals differ in their opportunities to benefit from duty-free shopping, and we focus on the implications of these differences for optimal commodity taxation within a version of the optimal tax model of Mirrlees (Review of Economic Studies, 38, 175–208, 1971). We show how duty-free alters the constraints on the use of commodity taxes to reduce the distortionary costs of income taxation or to reflect externalities. Beyond characterising optimal taxes in the duty-free regime, we discuss conditions under which allowing duty-free would increase or reduce social welfare.

Keywords

Optimal taxation Commodity taxation Duty-free 

JEL

H2 

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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.University of OsloOsloNorway
  2. 2.Department of EconomicsUniversity College LondonLondonUK

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