Marginal Tax Reform and the Specification of Consumer Demand Systems.

This paper examines the conjecture that tax reform recommendations are not as sensitive to underlying consumer demand systems as are derived optimal tax rates. Tax reform recommendations for Ireland using the Ahmad-Stern model of indirect tax reform with different underlying consumer demand systems are examined. They are found to exhibit little sensitivity to the underlying deterministic demand system but they do display considerable sensitivity to dynamic specification. They also display sensitivity with regard to the imposition of the restrictions implied by utility maximization, especially symmetry. Copyright 1996 by Royal Economic Society.