International Tax and Public Finance

, Volume 25, Issue 3, pp 654–672 | Cite as

Optimal fringe benefit taxes: the implications of business use

  • Callum Butler
  • Paul Calcott


Unless fringe benefits are taxed, remuneration may be distorted toward such benefits and away from wages and salaries. A principle for setting such taxes has been proposed in previous work. In particular, the value to workers of fringe benefits would be taxed at a rate equivalent to that on wages and salaries. The current paper reexamines this principle in a model where workers’ valuations are heterogeneous and unobservable to the tax authority. This model does have cases that are broadly consistent with the existing principle, but it also highlights cases in which taxes should be higher on fringe benefits that produce value for the firm.


Fringe benefits Taxes Distortions 

JEL Classification

H21 H24 H32 



The authors would like to thank the editors and reviewers for their help. The views expressed are those of the authors and do not necessarily reflect the views of the State Services Commission.


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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  1. 1.State Services CommissionWellingtonNew Zealand
  2. 2.Victoria University of WellingtonWellingtonNew Zealand

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