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Measuring tax efficiency: A tax optimality index

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  • Raimondos-Moller, Pascalis
  • Woodland, Alan D.

Abstract

This paper introduces an index of tax optimality that measures the distance of a current tax structure from the optimal tax structure in the presence of public goods. In doing so, we derive a [0,1] number that reveals immediately how far the current tax configuration is from the optimal one and, thereby, the degree of efficiency of a tax system. We call this number the Tax Optimality Index. We show how the basic method can be altered in order to derive a revenue equivalent uniform tax, which measures the size of the public sector. A numerical example is used to illustrate the method developed.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 90 (2006)
Issue (Month): 10-11 (November)
Pages: 1903-1922

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:10-11:p:1903-1922

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Web page: http://www.elsevier.com/locate/inca/505578

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  1. James E. Anderson & J. Peter Neary, 1998. "The Mercantilist Index of Trade Policy," Working Papers 199813, School Of Economics, University College Dublin.
  2. Anderson, James E. & Neary, J. Peter, 1992. "A new approach to evaluating trade policy," Policy Research Working Paper Series 1022, The World Bank.
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  4. Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
  5. Nancy H. Chau & Rolf F”re & Shawna Grosskopf, 2003. "Trade restrictiveness and efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 1079-1095, 08.
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  7. Kay, John & Keen, Michael, 1988. "Measuring the inefficiences of tax systems," Journal of Public Economics, Elsevier, vol. 35(3), pages 265-287, April.
  8. J. Peter Neary, 2004. "Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income," American Economic Review, American Economic Association, vol. 94(5), pages 1411-1428, December.
  9. J. Christophe Bureau & Nancy H. Chau & Rolf F”re & Shawna Grosskopf, 2003. "Economic Performance, Trade Restrictiveness, and Efficiency," Review of Development Economics, Wiley Blackwell, vol. 7(4), pages 527-542, November.
  10. Cornes,Richard, 1992. "Duality and Modern Economics," Cambridge Books, Cambridge University Press, number 9780521336017.
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