Measuring Tax Efficiency: A Tax Optimality Index
AbstractThis 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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Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 04-08.
Length: 26 pages
Date of creation: Jun 2004
Date of revision:
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tax optimality index; excess burden; distance function;
Other versions of this item:
- Raimondos-Møller, Pascalis & Woodland, Alan D, 2004. "Measuring Tax Efficiency: A Tax Optimality Index," CEPR Discussion Papers 4566, C.E.P.R. Discussion Papers.
- Pascalis Raimondos-Møller & Alan D. Woodland, 2004. "Measuring Tax Efficiency: A Tax Optimality Index," CESifo Working Paper Series 1236, CESifo Group Munich.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-07-11 (All new papers)
- NEP-PBE-2004-07-11 (Public Economics)
- NEP-PUB-2004-07-26 (Public Finance)
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