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Optimal Tax Rates and Tax Design during Systemic Reform

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  • Newbery, David

Abstract

Budgets in Eastern Europe are under strain as taxes are reformed and receipts fall. Should existing levels of expenditure be maintained or should personal taxes be cut at the expense of redistributive expenditures? The paper asks how optimal tax rates might respond to a transition in which the government becomes less averse to inequality, but the inequality in skills increases. These lead to roughly offsetting changes, and are less important than the fall in enterprise revenue and the decline in the efficiency of personal taxation, both of which cause a sharp fall in optimal transfers. Tax, design consists in balancing the differing inefficiencies of incompleteness in indirect tax coverage against evasion-prone direct taxes.

Suggested Citation

  • Newbery, David, 1994. "Optimal Tax Rates and Tax Design during Systemic Reform," Institute for Policy Reform Working Paper Series 294830, Institute for Policy Reform.
    • Handle: RePEc:ags:iprwps:294830
    DOI: 10.22004/ag.econ.294830
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    References listed on IDEAS

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    1. Deaton, Angus, 1983. "An explicit solution to an optimal tax problem," Journal of Public Economics, Elsevier, vol. 20(3), pages 333-346, April.
    2. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-1082, December.
    3. Atkinson,Anthony Barnes & Micklewright,John, 1992. "Economic Transformation in Eastern Europe and the Distribution of Income," Cambridge Books, Cambridge University Press, number 9780521438827, January.
    4. Deaton, Angus & Stern, Nicholas, 1986. "Optimally uniform commodity taxes, taste differences and lump-sum grants," Economics Letters, Elsevier, vol. 20(3), pages 263-266.
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