Income taxes and price variability in storable commodity markets

Progressive income taxes lead to distortions in economic decisions made across tax years. This is particularly important when income is volatile,as in the case of agriculture. Progressive taxes, therefore, can fundamentally change economic behavior over time. This study explores how progressive income taxes influence storage decisions and the markets for storable commodities. Under a progressive tax system, commodity storage tends to be lower in the aggregate and, as a consequence, price volatility increases. These distortions could be eliminated by introducing a hat-rate tax or by changing the tax reporting system for farmers.