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On Policy Relevance of Ramsey Tax Rules

The Ramsey approach to optimal taxation and Ramsey tax rules have amassed substance in economic theory. However, they are often criticized on grounds of practicality, fairness, feasibility and some other aspects of designing actual tax policy. This paper contests these criticisms,it discusses how closely or remotely Ramsey rules are followed in designing tax policy. It argues that the most of these common criticisms, be it realistic, such as administrative and compliance costs, or be it rather abstract, such as fairness, are either unimportant or irrelevant for Ramsey taxation. The more important inadequacy of the traditional Ramsey tax models is the selective modelling of incentive effects of tax reforms and their limited applicability for designing tax policy in developing countries.

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Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2006/19.

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Length: 34 pages
Date of creation: Mar 2006
Date of revision: Jul 2006
Publication status: Published in economics-ejournal economics discussion Papers, No 2007-31. http://www.economics-ejournal.org/economics/discussionpapers/2007-31
Handle: RePEc:cdf:wpaper:2006/19
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