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Measuring Tax Efficiency

  • Raimondos-Møller, Pascalis

    (Department of Economics, Copenhagen Business School)

  • Woodland, Alan D.

    (Department of Economics, Copenhagen Business School)

This paper introduces an index of tax optimality that measures the distance of some current tax structure from the optimal tax structure in the presence of public goods. In doing so, we derive a [0, 1] number that reveals immediately how far the current tax configuration is from the optimal one and, thereby, the degree of efficiency of a tax system. We call this number the Tax Optimality Index. We show how the basic method can be altered in order to derive a revenue equivalent uniform tax, which measures the size of the public sector. A numerical example is used to illustrate the method developed.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7534
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Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 05-2004.

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Length: 31 pages
Date of creation: 30 Aug 2006
Date of revision:
Handle: RePEc:hhs:cbsnow:2004_005
Contact details of provider: Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 34 99
Web page: http://www.cbs.dk/departments/econ/
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  1. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier.
  2. J Anderson & J.P. Neary, 1993. "A New Approach to Evaluating Trade Policy," CEP Discussion Papers dp0173, Centre for Economic Performance, LSE.
  3. J. Peter Neary, 2004. "Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income," American Economic Review, American Economic Association, vol. 94(5), pages 1411-1428, December.
  4. Diamond, P. A. & McFadden, D. L., 1974. "Some uses of the expenditure function in public finance," Journal of Public Economics, Elsevier, vol. 3(1), pages 3-21, February.
  5. Nancy H. Chau & Rolf F”re & Shawna Grosskopf, 2003. "Trade restrictiveness and efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 1079-1095, 08.
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