Atkinson and Stiglitz theorem in the presence of a household production sector

- Are differential commodity taxes useful when incomes are taxed nonlinearly?
- Not if preferences are weakly separable between goods and leisure.
- This is the celebrated Atkinson and Stiglitz (1976) result. We prove the following two results:
- The result breaks down when some goods are produced within the household.
- Weakly-separable preferences between market and leisure/household goods restore it.

Atkinson and Stiglitz (1976) uniform commodity tax result does not hold when (at least) one of the goods is produced within the household. The result is restored if preferences are weakly-separable in market goods versus leisure and household goods.