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Optimal commodity taxation with duty-free shopping

Christiansen, V.; Smith, S.; (2008) Optimal commodity taxation with duty-free shopping. International Tax and Public Finance , 15 (3) pp. 274-296. 10.1007/s10797-007-9034-z.

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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.

Type: Article
Title: Optimal commodity taxation with duty-free shopping
DOI: 10.1007/s10797-007-9034-z
Publisher version: http://dx.doi.org/10.1007/s10797-007-9034-z
Language: English
Keywords: JEL classification: H21, H25. Optimal taxation, commodity taxation, duty-free
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/12745
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