Commodity Tax Reforms In A Many Consumers Economy: A Viable Decision-Making Procedure

This paper deals with efficiency and distributional effects of marginal commodity tax reforms in economies with heterogeneous individuals. It contributes to the literature in three ways. First, a decision rule based on revenue potentialities - the ratio between marginal revenue and the tax base - is originally developed with reference to a many consumers economy. The relevance lies in the fact that these indicators do not depend on measures of utility. Second, the connection with former literature is analyzed. Third, a comprehensive and progressive decision-making procedure relying on revenue potentialities is defined. Overall, all that policy makers need to know - in order to look for improvements in efficiency and/or distribution through revenue-neutral marginal commodity tax reforms - is the revenue potentiality of each tax and the share of expenditure by poor families. An example with reference to Italian data is provided.