A Note on Commodity Taxation and Economic Growth

This study reexamines the growth effect of commodity taxation in a variety-expansion model. Integrating endogenous labor supply, a linear utility function for consumption, and an additively separable utility function for consumption and leisure, we derive results that contrast with those of previous analyses in certain respects. If the elasticity of labor supply with respect to commodity taxation is sufficiently high, an increase in the commodity tax rate can decrease the short-run growth rate.