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Measuring Tax Efficiency: A Tax Optimality Index

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  • Pascalis Raimondos
  • Alan D. Woodland

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.

Suggested Citation

  • Pascalis Raimondos & Alan D. Woodland, 2004. "Measuring Tax Efficiency: A Tax Optimality Index," CESifo Working Paper Series 1236, CESifo.
    • Handle: RePEc:ces:ceswps:_1236
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    References listed on IDEAS

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    More about this item

    Keywords

    tax optimality index; excess burden; distance function;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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