Theory and Policy: A Comment on Dixit and on Current Tax Theory
In a recent paper Avinash Dixit criticized the argument that when collection lags characterize tax systems, recourse to inflationary finance should be minimized. He argued that, in such cases, rather than minimizing recourse to inflationary finance, the rates of the commodity taxes should be adjusted to maintain them at an optimal level and, thus, to minimize welfare cost. This paper shows that the requirements for following Dixit's policy prescription are almost impossible to meet. The paper argues that tax theorists should pay more attention to the constraints under which tax reforms are made.
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Volume (Year): 39 (1992)
Issue (Month): 4 (December)
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