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Optimal taxation as a guide to tax policy: a survey

  • Chris Heady

The purpose of this paper is to survey the field of optimal taxation. In order to provide a focus, and bearing in mind the interests of many of the readers of Fiscal Studies, the paper will concentrate on attempting to answer the question of whether, and to what extent, the literature on optimal taxation can provide guidance in the practical determination of tax policy. This focus means that the survey will be selective, and will neglect many intellectually interesting results that have not yet been developed to provide clear policy conclusions. It is an interest in tax policy that has led a number of economists to undertake research on optimal taxation, and so one might expect the link between the research and the policy-making to be clear. However, the level of abstraction of much of the research, together with the extensive use of (sometimes difficult) mathematics, has caused many policy-orientated people to discount its practical value. It is dismissed as being “academic’, with little or no practical value. For some, the mere title of the field is off-putting: how can any aspect of public policy, with all its political constraints and administrative problems, ever hope to be optimal? Particularly, how can anything as unpopular as taxation be described in such terms?

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Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 14 (1993)
Issue (Month): 1 (February)
Pages: 15-41

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Handle: RePEc:ifs:fistud:v:14:y:1993:i:1:p:15-41
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  1. repec:cup:cbooks:9780521397421 is not listed on IDEAS
  2. Heady, Christopher J. & Mitra, Pradeep K., 1992. "Taxation in decentralizing socialist economies : the case of China," Policy Research Working Paper Series 820, The World Bank.
  3. repec:cup:cbooks:9780521265638 is not listed on IDEAS
  4. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  5. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Myles, Gareth D., 1989. "Ramsey tax rules for economies with imperfect competition," Journal of Public Economics, Elsevier, vol. 38(1), pages 95-115, February.
  7. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, March.
  8. Richard Blundell, 1992. "Labour supply and taxation: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 13(3), pages 15-40, January.
  9. Deaton, Angus, 1979. "Optimally uniform commodity taxes," Economics Letters, Elsevier, vol. 2(4), pages 357-361.
  10. Heady, Christopher, 1987. "A Diagrammatic Approach to Optimal Commodity Taxation," Public Finance = Finances publiques, , vol. 42(2), pages 250-63.
  11. Allen, Franklin, 1982. "Optimal linear income taxation with general equilibrium effects on wages," Journal of Public Economics, Elsevier, vol. 17(2), pages 135-143, March.
  12. Ebrahimi, Ahmad & Heady, Christopher, 1987. "Tax Design and Household Composition," Economic Journal, Royal Economic Society, vol. 98(390), pages 83-96, Supplemen.
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