Optimal Commodity Taxation Case 1-All goods can be taxed If all commodities can be taxed, imposing equal ad-valorem tax rates yields W7=(1+)fX+(1+)P+(1+)wt WT -PX+Pytwl 1+4 Optimal Commodity Taxation: Case 1 – All goods can be taxed • If all commodities can be taxed, imposing equal ad-valorem tax rates yields: wT ( t)P X ( t)P Y ( t)wl = 1+ X + 1+ Y + 1+ ( ) wT t P X P Y wl X Y 1+ = + +