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An alternative way to model merit good arguments

Schroyen, Fred
Working paper
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URI
http://hdl.handle.net/11250/165658
Date
2003-11
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  • Working papers (SNF) [809]
Abstract
Besley (1988) uses a scaling approach to model merit good arguments in commodity tax policy. In this paper, I question this approach on the grounds that it produces wrong recommendations-taxation (subsidisation) of merit (demerit) goods-whenever the demand for the (de) merit good is inelastic. I propose an alternative approach that does not suffer from this dificiency, and derive the ensuing first and second best tax rules, as well as the marginal cost expressions to perform tax reform analysis.
Publisher
SNF
Series
Working paper
2003:47

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