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The Theory of Optimal Taxation: What is the Policy Relevance?

  • Peter Birch Sørensen

    (Department of Economics, University of Copenhagen)

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    The paper discusses the implications of optimal tax theory for the debates on uniform commodity taxation and neutral capital income taxation. While strong administrative and political economy arguments in favor of uniform and neutral taxation remain, recent advances in optimal tax theory suggest that the information needed to implement the differentiated taxation prescribed by optimal tax theory may be easier to obtain than previously believed. The paper also points to the strong similarity between optimal commodity tax rules and the rules for optimal source-based capital income taxation.

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    File URL: http://www.econ.ku.dk/eprn_epru/Workings_Papers/wp-06-07.pdf
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    Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 06-07.

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    Length: 44 pages
    Date of creation: Aug 2006
    Date of revision:
    Handle: RePEc:kud:epruwp:06-07
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    3. Munk, Knud Jorgen, 1978. " Optimal Taxation and Pure Profit," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(1), pages 1-19.
    4. Osmundsen, P. & Hagen, K. P. & Schjelderup, G., 1998. "Internationally mobile firms and tax policy1," Journal of International Economics, Elsevier, vol. 45(1), pages 97-113, June.
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    7. Saez, Emmanuel, 2002. "The desirability of commodity taxation under non-linear income taxation and heterogeneous tastes," Journal of Public Economics, Elsevier, vol. 83(2), pages 217-230, February.
    8. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421 Elsevier.
    9. Huizinga, H.P. & Nielsen, S.B., 1997. "Capital income and profit taxation with foreign ownership of firms," Other publications TiSEM b4f6a916-7f7f-4fe1-9cf0-c, Tilburg University, School of Economics and Management.
    10. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
    11. Bovenberg, A.L. & Goulder, L.H., 1996. "Optimal environmental taxation in the presence of other taxes : General equilibrium analyses," Other publications TiSEM 5d4b7517-c5c8-4ef6-ab76-3, Tilburg University, School of Economics and Management.
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    15. Keen, M. & Ligthart, J.E., 2004. "Incentives and Information Exchange in International Taxation," Discussion Paper 2004-54, Tilburg University, Center for Economic Research.
    16. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
    17. Auerbach, Alan J., 2006. "The Choice between Income and Consumption Taxes: A Primer," Berkeley Olin Program in Law & Economics, Working Paper Series qt9q85f6qz, Berkeley Olin Program in Law & Economics.
    18. Sandmo, Agnar, 1990. "Tax Distortions and Household Production," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 78-90, January.
    19. Kleven, Henrik Jacobsen, 2004. "Optimum taxation and the allocation of time," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 545-557, March.
    20. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    23. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
    24. P. B. Sørensen, 1997. "Public finance solutions to the European unemployment problem?," Economic Policy, CEPR;CES;MSH, vol. 12(25), pages 221-264, October.
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