Quaderni del Dipartimento di Scienze Economiche e Matematico-Statistiche dell'Università del Salento - Collana di Economia

This paper investigates whether the pursuit of redistributional objectives may provide a rationale for source -and origin- based taxation in small open economies. The analysis is developed in a simple two-class economy where consumers are classified according to the type of labour they supply. Source-based taxes on capital income and commodity origin-based taxes result in a differential burden on the two types of labour. When labour income is taxed with a linear schedule, the government can exploit the differential incidence of source- and origin-based taxes to improve income allocation. By contrast, if a non-linear tax is levied on labour income, source-and origin-based taxes cannot directly improve income distribution as the two types of labour have different marginal tax rates.
However, they can improve social welfare by relaxing the self-selection constraints that bind the nonlinear tax.