Rules of Normalisation and their Importance for Interpretation of Systems of Optimal Taxation
The adoption of proper rules of normalisation is in general considered a trivial problem which deserves little attention. Possibly for that very reason errors in normalisation have resulted in flawed interpretations of the conditions for optimal commodity taxation. We state based on an explicit representation of the general equilibrium conditions the rules of normalisation in standard optimal tax models. This allows us to provide an intuitive explanation of what determines the optimal tax system. Finally, we review a number of examples where lack of precision with respect to normalisation in otherwise important contributions to the literature on optimal taxation has given rise to misinterpretations of of analytical results.
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- Jakob Roland Munch & Michael Rosholm & Michael Svarer, 2006.
"Home Ownership, Job Duration, and Wages,"
Economics Working Papers
2006-06, Department of Economics and Business Economics, Aarhus University.
- Munch, Jakob R. & Rosholm, Michael & Svarer, Michael, 2006. "Home Ownership, Job Duration and Wages," IZA Discussion Papers 2110, Institute for the Study of Labor (IZA).
- Jakob Roland Munch & Michael Rosholm & Michael Svarer, 2006. "Home Ownership, Job Duration, and Wages," CAM Working Papers 2006-08, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
- Francesco Busato & Enrico Marchetti, 2006. "Skills, sunspots and cycles," Economics Working Papers 2006-07, Department of Economics and Business Economics, Aarhus University.
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