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Fiscal Aspects Of The Equity-Efficiency Trade-Off

Author

Listed:
  • BASIL DALAMAGAS

    (Department of Economics, National and Kapodistrian University of Athens, Athens, Greece)

  • JOHN LEVENTIDES

    (Department of Economics, National and Kapodistrian University of Athens, Athens, Greece)

  • STEFANOS TANTOS

    (��Department of Accounting and Finance, University of West Attica, Athens, Greece‡National and Kapodistrian University of Athens MBA, Athens, Greece)

Abstract

This study makes an attempt to trace out the extent to which (in)direct taxation distorts consumers’ behavior, thus being a hindrance towards achieving an optimal allocation of resources between equity and efficiency targets. To substantiate our argument, a utility maximization model is built to examine whether fiscal policy restores public confidence in attaining equilibrium between the marginal rate of substitution (MRS) and the marginal rate of transformation (MRT). The validity of our model is then tested by using a sample of eleven countries. Comparing actual with optimal (in)direct tax rates, we find that the tax system of eight countries tends to favor equity over efficiency (actual direct (indirect) tax rates higher (lower) than optimal direct (indirect) tax rates) and the tax system of three countries tends to apply the efficiency principle.

Suggested Citation

  • Basil Dalamagas & John Leventides & Stefanos Tantos, 2023. "Fiscal Aspects Of The Equity-Efficiency Trade-Off," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 23(01n04), pages 1-27, December.
    • Handle: RePEc:wsi:gejxxx:v:23:y:2023:i:01n04:n:s2194565924500040
    DOI: 10.1142/S2194565924500040
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    More about this item

    Keywords

    Equity-efficiency trade-off; optimal taxation; labor supple incentives; fair income distribution; growth;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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