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Measuring Tax Efficiency

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Author Info
Raimondos-Møller, Pascalis (Department of Economics, Copenhagen Business School)
Woodland, Alan D. (Department of Economics, Copenhagen Business School)

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Abstract

This paper introduces an index of tax optimality that measures the distance of some 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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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7534
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Publisher Info
Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 05-2004.

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Length: 31 pages
Date of creation: 30 Aug 2006
Date of revision:
Handle: RePEc:hhs:cbsnow:2004_005

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Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 26 65
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Web page: http://www.cbs.dk/departments/econ/
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Related research
Keywords: Tax optimality index; excess burden; distance function;

Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. J. Peter Neary, 1996. "Rationalising the Penn World Table - True Multilateral Indices for International Comparisons of real Income," Working Papers 199622, School Of Economics, University College Dublin. [Downloadable!]
    Other versions:
  2. Diewert, Erwin, 2007. "Index Numbers," UBC Departmental Archives diewert-07-01-03-08-17-23, UBC Department of Economics, revised 31 Jan 2007. [Downloadable!]
  3. 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. [Downloadable!] (restricted)
  4. Anderson, James E & Neary, J Peter, 1996. "A New Approach to Evaluating Trade Policy," Review of Economic Studies, Blackwell Publishing, vol. 63(1), pages 107-25, January. [Downloadable!] (restricted)
    Other versions:
  5. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier. [Downloadable!] (restricted)
    Other versions:
  6. Diamond, P. A. & McFadden, D. L., 1974. "Some uses of the expenditure function in public finance," Journal of Public Economics, Elsevier, vol. 3(1), pages 3-21, February. [Downloadable!] (restricted)
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