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.
|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|
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