Measuring Tax Efficiency: A Tax Optimality Index
AbstractThis 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 InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1236.
Date of creation: 2004
Date of revision:
tax optimality index; excess burden; distance function;
Other versions of this item:
- Pascalis Raimondos-Møller & Alan D. Woodland, 2004. "Measuring Tax Efficiency: A Tax Optimality Index," EPRU Working Paper Series 04-08, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Raimondos-Møller, Pascalis & Woodland, Alan D, 2004. "Measuring Tax Efficiency: A Tax Optimality Index," CEPR Discussion Papers 4566, C.E.P.R. Discussion Papers.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
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