uncertainty and optimal taxation in defense of commodity taxes abstract this paper re examines the theory of optimal commodity taxation in the presence of a linear income tax under wage uncertainty there are two categories of goods the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after the paper i characterizes the structure of the optimal commodity taxes in view of the insurance they provide against random wage movements ii proves that optimal taxation requires a mix of differential commodity taxes and a uniform lump sum tax and iii demonstrates that the post uncertainty goods should face a positive tax rate which is higher than the tax rate on the pre committed goods

income and substitution effects of estate taxation despite the long us history of taxing estates the economic consequences of estate taxation in practice remain unclear the us estate tax first appeared in 1797 only to be repealed in 1802 estate taxes were subsequently imposed on a temporary basis from 1862 1872 and 1898 1902 to finance wartime expenditures the modern estate tax was introduced in 1916 and with varying exemption levels and tax rates including a hiatus during 2010 has remained in force ever since taxes generally have been imposed only on large estates the current 5 25 million exempt amount implying that smaller estates escape federal taxes altogether the estate tax serves two functions it collects revenue from large estates and it discour ages the transmission of wealth at death it is an understatement to say that the us estate tax is controversial for more of an explicit statement and historical elaboration see graetz and shapiro 2005 as there is controversy over both the desirability of imposing estate tax burdens and the economic consequences of incentives created by estate taxation one of the sources of differences in views over the likely effects of estate taxation is differing degrees of rationality and foresight that are attributed to economic actors the purpose of this paper is to analyze incentives created by estate taxes in a setting in which agents act rationally and are endowed with accurate foresight since estate taxes reduce resources available to individuals and also affect relative prices the taxes have income and substitution effects on labor supply consumption saving and other economic decisions the paper considers the net impact of these effects

on the desirability of taxing capital income in optimal social insurance abstract this paper analyzes optimal linear taxes on labor income and savings in a two period life cycle model with ex ante identical households endogenous leisure demands in both periods and general processes of skill shocks over the life cycle we demonstrate that the atkinson stiglitz theorem breaks down under risk capital taxes are employed besides labor income taxes for two distinct reasons i capital taxes reduce labor supply distortions on second period labor supply since second period labor supply and saving are substitutes ii capital taxes insure first period income risk although this benefit is partially off set because first period labor supply and saving are complements our results imply that retirement saving should not be actuarially fair

the carnegie conjecture some empirical evidence this paper examines tax return generated data on the labor force behavior of people before and after they receive inheritances the results are consistent with andrew carnegie s century old assertion that large inheritances decrease a person s labor force participation for example a single person who receives an inheritance of about 150 000 is roughly four times more likely to leave the labor force than a person with an inheritance below 25 000 additional albeit weaker evidence suggests that large inheritances depress labor supply even when participation is unaltered warren kendall heir to an insurance company fortune says he s worth about 5 million and has an income of about oh 300 and some thousand a year h e has never held a job or wanted to going down to sea in cruise ships is his full time pursuit he estimates that he has taken about 250 cruises over the past couple of decades spending at least 50 percent to 70 percent of the year afloat morgenthaler 1991 p al

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

public capital asymmetric information and economic growth we investigate the provision of public capital in an endogenous growth model with asymmetric information in a credit market with costly screening we show that the equilibrium contracts are characterized by the self selection of borrowers through identifying an additional adverse effect of taxation on growth we show that the optimal tax rate in our model is smaller than the output elasticity of public capital therefore our analysis justifies a more conservative tax policy in the presence of asymmetric information furthermore our model suggests a number of implications that appear to be well supported by preliminary evidence in cross country data jel classification d82 h21 041

social security and retirement decision a positive and normative approach social insurance for the elderly is judged responsible for the widely observed trend towards early retirement in a world of laissez faire or in a first best setting there would be no such trend however when first best instruments are not available because health and productivity are not observable the optimal social insurance policy may imply a distortion on the retirement decision the main point we make is that while there is no doubt that retirement systems induce an excessive bias towards early in many countries a complete elimination of this bias i e a switch to an actuarially fair system is not the right answer this is so and for two reasons first some distortions are secondbest optimal this is the normative argument second and on the positive side the elimination of the bias might be problematic from a political perspective depending on the political process it may either not be feasible or alternatively it may tend to undermine the political support for the pension system itself

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

asymmetric information auditing commitment and economic growth we analyze in this paper the growth and welfare consequences arising from the lack of auditing commitment in a credit market with costly state verification specifically two endogenous growth models of which one allows lenders to commit to costly auditing strategies to identify borrowers investment returns and the other does not are compared we show that the inability to commit acts as an additional source of informational friction that leads to more stringent contractual terms which in turn result in lower capital accumulation growth and welfare in addition when a tax on capital is considered the tax induced investment distortions are amplified by the absence of auditing commitment from the policy perspective our analysis can be interpreted as suggesting a new micro economic channel through which institutional failings hinder economic growth and social welfare

interorganizational alliances and the performance of firms a study of growth and innovation rates in a high technology industry this paper investigates the relationship between intercorporate technology alliances and firm performance it argues that alliances are access relationships and therefore that the advantages which a focal firm derives from a portfolio of strategic coalitions depend upon the resource profiles of its alliance partners in particular large firms and those that possess leading edge technological resources are posited to be the most valuable associates the paper also argues that alliances are both pathways for the exchange of resources and signals that convey social status and recognition particularly when one of the firms in an alliance is a young or small organization or more generally an organization of equivocal quality alliances can act as endorsements they build public confidence in the value of an organization s products and services and thereby facilitate the firm s efforts to attract customers and other corporate partners the findings from models of sales growth and innovation rates in a large sample of semiconductor producers confirm that organizations with large and innovative alliance partners perform better than otherwise comparable firms that lack such partners consistent with the status transfer arguments the findings also demonstrate that young and small firms benefit more from large and innovative strategic alliance partners than do old and large organizations copyright 2000 john wiley sons ltd

asymmetric information and loan contracts in a neoclassical growth model the authors consider a neoclassical growth model with risky investment projects in which a borrower s an investor s risk type is private information their innovation is to determine jointly the equilibrium loan contract and the economy s growth path and the steady state capital stock the authors show that as capital accumulates credit rationing may fall as an increasing number of lenders choose to acquire costly information to separate borrowers as to type this transition from credit rationing to screening in turn results in a higher capital accumulation path and a higher steady state capital stock they also investigate the effects of a decrease in the cost of information on the economy s capital accumulation path and steady state capital stock the authors show that the cost of information must fall below a threshold level before the economy moves from a credit rationing equilibrium to a screening one thus a threshold must be crossed before the steady state capital stock is increased with a decrease in the cost of information copyright 1997 by ohio state university press

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

how should capital be taxed this survey discusses how capital should be taxed in advanced economies we review the theoretical optimal tax literature survey empirical studies on the distribution of capital and the distortion

on the long run evolution of inheritance france 1820 2050 this paper attempts to document and account for the long run evolution of inheritance we find that in a country like france the annual flow of inheritance was about 20 25 of national income between 1820 and 1910 down to less than 5 in 1950 and back up to about 15 by 2010 a simple theoretical model of wealth accumulation growth and inheritance can fully account for the observed u shaped pattern and levels using this model we find that under plausible assumptions the annual bequest flow might reach about 20 25 of national income by 2050 this corresponds to a capitalized bequest share in total wealth accumulation well above 100 our findings illustrate the fact that when the growth rate g is small and when the rate of return to private wealth r is permanently and substantially larger than the growth rate say r 4 5 vs g 1 2 which was the case in the 19th century and early 20th century and is likely to happen again in the 21st century then past wealth and inheritance are bound to play a key role for aggregate wealth accumulation and the structure of lifetime inequality contrarily to a widely spread view modern economic growth did not kill inheritance

consumption inequality and family labor supply we examine the link between wage and consumption inequality using a life cycle model incorporating consumption and family labor supply decisions we derive analytical expressions for the dynamics of consumption hours and earnings of two earners in the presence of correlated wage shocks nonseparability progressive taxation and asset accumulation the model is estimated using panel data for hours earnings assets and consumption we focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks once family labor supply assets and taxes are properly accounted for there is little evidence of additional insurance jel d12 d14 d91 j22 j31

the effect of inheritance receipt on retirement abstract this paper provides new evidence on how wealth shocks influence retirement behavior economic theory generally posits that leisure is a normal good yet it is difficult to obtain reliable empirical estimates of the wealth effect because wealth is correlated with numerous unobservable characteristics that affect labor supply we use inheritance receipt as a wealth shock and find that it is associated with a significant increase in the probability of retirement especially when the inheritance is unexpected this evidence has important implications for how public policies such as pension or tax reform may influence retirement behavior through the wealth effect

estimating the effect of unearned income on labor supply earnings savings and consumption evidence from a survey of lottery players this paper provides empirical evidence about the effect of unearned income on earnings consumption and savings using an original survey of people playing the lottery in massachusetts in the mid 1980 s the effects of the magnitude of lottery prizes on economic behavior are analyzed the critical assumption is that among lottery winners the magnitude of the prize is randomly assigned it is found that unearned income reduces labor earnings with a marginal propensity to consume leisure of approximately 11 percent with larger effects for individuals between 55 and 65 years old after receiving about half their prize individuals saved about 16 percent

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

worldwide reach of short selling regulations abstract we characterize legality and incidence of short selling in a worldwide multimarket framework home country short selling restrictions curtail home market stock borrowing by 45 and reduce short selling of the country s american depository receipts adrs by 68 due to regulatory reach also the 2008 us ban on short selling of financial firms reduced borrowing in foreign locations these findings are robust to controls for option availability enforcement returns firm size trading volume dividends adr level volatility days to cover and industry sector further we show that investor conduct resulting from adherence to professional standards is a more powerful mechanism of regulatory reach than intergovernment cooperation

incentive effects of inheritances and optimal estate taxation i consider optimal nonlinear taxation of income and bequests with a joy of giving bequest motive and explicitly characterize the optimal estate tax rate the optimal formula trades off correction of externality from giving and discouraging effort of children due to income effect generated by bequests the analysis shows that optimality of a positive tax on bequests rests on the strength of the effect of bequests on behavior of future generations the analysis also suggests that inheritance rather than estate tax is better suited to implement the optimal policy

the effect of wealth on individual and household labor supply evidence from swedish lotteries abstract we study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of swedish lottery players winning a lottery prize modestly reduces earnings with the reduction being immediate persistent and quite similar by age education and sex a calibrated dynamic model implies lifetime marginal propensities to earn out of unearned income from 0 17 at age 20 to 0 04 at age 60 and labor supply elasticities in the lower range of previously reported estimates the earnings response is stronger for winners than their spouses which is inconsistent with unitary household labor supply models jel d14 j22 j31

debt contracts and financial intermediation with costly screening we develop a credit market model with adverse selection where risk neutral bor rowers self select because lenders make use of a costly screening technology equilibrium contracts are debt contracts and this is robust to randomization in contrast to results for the costly state verification model this framework permits optimal financial intermediary structures in that there is delegated screening in equilibrium if many borrowers are required to fund individual investment projects contrats de dette et internendiation financiere quand le tamisage est couteux les auteurs developpent un modele de marche du credit avec selection adverse otu les emprunteurs qui sont neutres par rapport au risque se selectionnent eux memes parce que les pr6teurs utilisent une technologie de tamisage qui est cohteuse les contrats d equilibre sont des contrats de dette et ces resultats s averent robustes meme quand on utilise des processus au hasard contrairement a ce qui se passe dans le cas du modele cooteux de verification par l etat ce cadre d analyse suggere des structures d intermediation financiere optimales en ce que en equilibre il y a delegation du tamisage si plusieurs emprunteurs sont necessaires pour

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

equilibrium loan contracts and endogenous growth in the presence of asymmetric information abstract this paper considers an endogenous growth model in which an informational asymmetry exists between capital producing borrowers and lenders as to the borrower s ability to successfully operate an investment project in contrast to previous models of this genre the lender can induce self selection either by rationing a fraction of borrowers or by using a costly screening technology or by a mix of the two the equilibrium contract s form and the growth rate of output are mutually dependent and are jointly determined the effect of the lower cost of screening on the growth rate of output has been considered we show that a decline in the screening cost paradoxically may lower the growth rate of output only when a threshold level of sophistication is crossed will the benefit of an advanced financial sector become evident in a higher growth rate

factor income taxation and growth under asymmetric information abstract this paper studies the growth effects of factor income taxation on capital and labor in an endogenous growth model with overlapping generations capital accumulation in our model takes place through credit financed investments in a market with asymmetric information between lenders and borrowers we show that in the presence of asymmetric information capital income taxation worsens the adverse selection problem in the credit market which in turn introduces an additional adverse effect on growth in so doing our analysis provides a new argument in favor of a lower higher capital labor income taxation in funding public expenditures

loan size as a commitment device the authors model risky lending with costly state verification but without commitment to an audit strategy the borrower underreports with a positive probability in the successful state and the lender audits with a positive probability after a report of failure under lack of commitment to audit probabilities an increase in loan size convinces the borrower that the lender has a high stake in an audit this reduces the probability of underreporting and leads to overinvestment relative to the commitment case however there is underinvestment relative to the level under full information copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

contracting with imperfect commitment and the revelation principle the single agent case this paper extends the revelation principle to environments in which the mechanism designer cannot fully commit to the outcome induced by the mechanism we show that he may optimally use a direct mechanism under which truthful revelation is an optimal strategy for the agent in contrast with the conventional revelation principle however the agent may not use this strategy with probability one our results apply to contracting problems between a principal and a single agent by reducing such problems to well defined programming problems they provide a basic tool for studying imperfect commitment

payroll tax financed social insurance with variable retirement the optimal relationship between retirement benefits and retirement age is derived the model assumes ex ante identical workers zero one labor supply no private savings wages and payroll taxes constant over life random onset of an inability to work and the impossibility of distinguishing those unable to work from those choosing retirement this formulation is meant to capture some issues for retirement programs where governments commonly do not measure disability e g ages 65 70 with intertemporally additive preferences optimal benefits rise with the age of retirement but more slowly than would be actuarially fair a nonadditive example is also considered

intertemporal substitution in labor supply evidence from micro data the sensitivity of the supply of labor to intertemporal variation in the wage is an important issue in macroeconomics the analysis of social security and pensions and the study of life cycle patterns of work this paper explores two approaches to the measurement of intertemporal substitution that have appeared in the literature the first approach is to use consumption to control for wealth and unobserved expectations about future wages in the labor supply equation the second approach is to estimate a first difference equation for hours in which labor supply from the previous period serves as a control for wealth and wage expectations the results indicate that intertemporal substitution elasticity for married men is positive but small

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

uncertainty optimal taxation and the direct versus indirect tax controversy this paper examines how the presence of uncertainty affects the design of tax policy when both indirect taxes and a general income tax are available to the government there are two categories of goods the consumption levels in one group are committed to before the resolution of uncertainty and those of the other after the paper proves that contrary to a b atkinson and j e stiglitz s 1976 result differential commodity taxation remains a useful instrument of optimal tax policy even if preferences are separable between labor and produced goods copyright 1995 by royal economic society

costly monitoring loan contracts and equilibrium credit rationing this paper develops a model with asymmetrically informed agents and costly monitoring of loan contracts where an equilibrium can exhibit credit rationing borrowers are identical ex ante but some receive loans and others do not in contrast to existing credit rationing theories rationing does not occur here due to inflexible prices adverse selection or moral hazard optimizing behaviour produces a standard debt contract in equilibrium the aggregate quantity of loans and equilibrium interest rates respond differently depending on whether there is rationing in equilibrium

optimal indirect and capital taxation we consider an environment in which agents skills are private information and follow arbitrary stochastic processes we prove that it is typically pareto optimal for an individual s marginal benefit of investing in capital to exceed his marginal cost of doing so this wedge is consistent with a positive tax on capital income we also prove that it is pareto optimal for the marginal rate of substitution between any two consumption goods to equal the marginal rate of transformation this lack of a wedge is consistent with uniform taxation of consumption goods within a period

swinging for the fences the effects of ceo stock options on company risk taking and performance we unpack the concept of managerial risk taking distinguishing among three of its major elements the size of an outlay the variance of potential outcomes and the likelihood of extreme loss we

some consequences of credit rationing in an endogenous growth model an endogenous growth model is developed where all investment is financed via credit extension there is also an adverse selection problem in loan markets so that in equilibrium credit rationing arises endogenously the result is that equilibrium levels of credit rationing and real growth rates are jointly determined in this context several changes in the environment can have unusual consequences for instance improvements in the technology for producing capital can reduce growth because of their adverse impacts on credit rationing for similar reasons various government investment subsidies can be growth reducing this phenomenon is often observed empirically

the simplicity of competitive repertoires an empirical analysis this research explores the notion of competitive simplicity a tendency of some firms to concentrate intensely on just a few central activities our focus here is the simplicity inherent in the repertoire of concrete market oriented actions used by companies to compete these actions include product introductions pricing or advertising decisions and changes in market scope the simplicity of a competitive repertoire can be assessed by its range of actions and its degree of concentration on one or a few dominant types of actions we argue that competitive simplicity is largely a function of organizational and environmental properties that attenuate managerial search or restrict knowledge of competitive alternatives these properties include good performance munificent homogeneous or certain markets a lack of breadth in competitive experiences and the complacency that may accompany age and size paradoxically although good past performance may contribute to simplicity simplicity can hurt subsequent performance especially during periods of uncertainty and growth many of these ideas were borne out in a study of the major carriers of the post deregulation domestic airline industry

short selling and common stock prices an analysis of overall market data and of individual companies traded on the nyse amex and otc markets indicates a positive but statistically insignificant relation between changes in short position and stock prices even after accounting for market movements and risk short sellers on average do not earn abnormal returns furthermore the relation between short selling and stock price does not seem to be materially affected by whether the stock is traded on the nyse or amex or over the counter the results provide strong evidence refuting the popular notion that short sellers earn abnormal profits at the expense of less informed traders short sellers do not appear to drive prices down through their short sales in fact if anything short sellers provide market liquidity by shorting into up markets and reducing short positions in down markets

labour supply effects of winning a lottery our article investigates how winning a substantial lottery prize affects labour supply analysing data from dutch state lottery winners we find that winning a lottery prize reduces labour earnings in the year of the winning as well as in the years after the winning this suggests that winning a lottery prize makes one work fewer hours the effects are small but statistically significant we do not find a significant effect of lottery prizes on the probability of being employed

identifying laffer bounds a sufficient statistics approach with an application to germany we derive a simple sufficient statistics test for whether a nonlinear tax transfer system is second best pareto efficient if it is not then it is beyond the top of the laffer curve and there exists a tax cut that is self financing the test depends on the income distribution extensive and intensive labor supply elasticities and income effect parameters a tax transfer system is likely to be inefficient if marginal tax rates are quickly falling in income we apply this test to the german tax transfer system and we find that the structure of effective marginal tax rates is likely to be inefficient in the region where transfers are phased out

short seller influence on firm growth a threat rigidity perspective whereas most investors seek to maximize their investment there are some who profit from downward stock price movement engaging in such behavior is called short selling and it has increased con

investor protection optimal incentives and economic growth does investor protection foster economic growth to assess the widely held affirmative view we introduce investor protection into a standard overlapping generations model of capital accumulation better investor protection implies better risk sharing because of entrepreneurs risk aversion this results in a larger demand for capital this is the demand effect a second effect the supply effect follows from general equilibrium restrictions better protection i e higher demand increases the interest rate and lowers the income of entrepreneurs decreasing current savings and next period s supply of capital the supply effect is stronger the tighter are the restrictions on capital flows our model thus predicts that the positive effect of investor protection on growth is stronger for countries with lower restrictions cross country data provide support for this prediction as does the detailed examination of the growth experiences of south korea and india

inheritance taxation and wealth effects on the labor supply of heirs abstract the taxation of bequests can have a positive impact on the labor supply of heirs through wealth effects this leads to an increase in labor income tax revenue on top of direct bequest tax revenue we first show in a theoretical model that a simple back of the envelope calculation based on existing estimates for the reduction in earnings after wealth transfers fails the marginal propensity to earn out of unearned income is not a sufficient statistic for the calculation of this effect because i heirs anticipate the reduction in net bequests and adjust their labor supply already prior to inheriting and ii when bequest receipt is stochastic even those who ex post end up not inheriting anything respond ex ante to the implied change in their distribution of net bequests we quantitatively elaborate the size of the overall revenue effect due to labor supply changes of heirs by using a state of the art life cycle model that we calibrate to the german economy besides the joint distribution of income and inheritances quasi experimental evidence regarding the size of wealth effects on labor supply is a key target for this calibration we find that for each euro of bequest tax revenue the government mechanically generates it obtains an additional 9 cents of labor income tax revenue in net present value through higher labor supply of non heirs

consumption taxes and economic efficiency with idiosyncratic wage shocks fundamental tax reform is examined in an overlapping generations model in which heterogeneous agents face idiosyncratic wage shocks and longevity uncertainty a progressive income tax is replaced with a flat consumption tax if idiosyncratic wage shocks are insurable i e no risk this reform improves interim efficiency a result consistent with the previous literature but if more realistically wage shocks are uninsurable this reform reduces efficiency even though national wealth and output increase over the entire transition path this efficiency loss in large part stems from reduced intragenerational risk sharing that was previously provided by the progressive tax system

uncertainty and optimally uniform commodity taxes this paper examines the implications of uncertainty for the structure of optimal commodity taxes in the presence of a linear income tax consumers face uncertain income and commit to consumption of some goods before the resolution of uncertainty and to others after preferences are separable between labor and consumption goods we prove that optimal commodity taxes are i uniform within the category of noncommitted goods if their subutility is logarithmic ii uniform within the two categories if both subutilities are logarithmic and iii nonzero across categories with the tax rate on precommitted goods being lower than the tax rate on noncommitted goods starting with atkinson and stiglitz 1976 a number of economists have argued that under certain restrictions on preferences e g logarithmic a linear income tax is a sufficient tool for optimal tax policy see atkinson 1977 deaton 1979 and deaton and stern 1986 recently cremer and gahvari 1995a showed that these results do not carry to an economy in which individuals face wage uncertainty in models with uncertainty taxation is useful for the insurance it provides if consumption takes place both before and after the resolution of uncertainty commodity taxes will have different insurance properties depending on when consumption occurs this property makes differential tax treatment of these two types of goods optimal cremer and gahvari 1995a divided commodities into two categories the consumption levels in one category are committed to before the resolution of uncertainty and those in the other after their study pinpoints a fundamental difference between these categories of goods that calls for their tax treatment to be different however their analysis leaves open the question of the uniformity of tax rates within each category the main aim of the current paper is to address this question we shall examine the type of preferences for which the tax rates within each category have to be uniform in this way we will build a bridge between the results of cremer and gahvari 1995a and the literature on uniform taxation in the presence of a linear