A Simple Model Of Optimal Tax Systems: Taxation, Measurement And Uncertainty
The neglect of administrative issues is a serious limitation of optimal tax theory, with implications for its practical applicability. We focus on an important class of administrative problems, namely that the tax bases are measured with some error. We also consider the full set of tax instruments. We find that consumption taxes can perform the 'social insurance role of taxation', a role previously ascribed only to income taxes. A combination of income and consumption taxes can hedge income and measurement-error risks better, relative to the imposition of either type of tax alone. The optimal tax rate is increasing in the precision with which the corresponding tax base is measured. The taxpayer engages in precautionary savings in response to income uncertainty and measurement problems. Differential commodity taxes tailored to the measurability characteristics of the different tax bases dominate uniform commodity taxes. However, as an economy becomes large, optimal taxes converge to uniform (or flat rate) taxes. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd and The University of Manchester.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 74 (2006)
Issue (Month): 6 (December)
|Contact details of provider:|| Postal: Manchester M13 9PL|
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1463-6786
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=1463-6786|
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.:
- Burgess, Robin & Stern, Nicholas, 1993. "Taxation and Development," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 762-830, June.
- Strawczynski, Michel, 1998. "Social insurance and the optimum piecewise linear income tax," Journal of Public Economics, Elsevier, vol. 69(3), pages 371-388, September.
- Chris Heady, 1993. "Optimal taxation as a guide to tax policy: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(1), pages 15-41, February.
When requesting a correction, please mention this item's handle: RePEc:bla:manchs:v:74:y:2006:i:6:p:645-669. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.