IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/20530.html
   My bibliography  Save this paper

In Praise of Frank Ramsey's Contribution to the Theory of Taxation

Author

Listed:
  • Joseph E. Stiglitz

Abstract

Frank Ramsey's classic paper "A contribution to the theory of taxation" gave rise to the modern theory of optimal taxation. This paper traces the literature that grew out of Ramsey's 1927 paper and assesses which of its key insights has proven robust. Though the path breaking work of Peter Diamond and James Mirrlees showed that Ramsey's results could be generalized in some important ways, other work showed that the domain of applicability of Ramsey's original insights may be more limited: changes in assumptions about the set of feasible taxes (not allowing certain taxes, or allowing a progressive income tax or non-linear commodity taxes), and in particular about the taxation of pure rents, incorporating more explicitly distributional considerations, and/or recognizing the important ways in which our economy differs from the competitive model underlying Ramsey's analysis all change the optimal structure of commodity taxation in important ways.

Suggested Citation

  • Joseph E. Stiglitz, 2014. "In Praise of Frank Ramsey's Contribution to the Theory of Taxation," NBER Working Papers 20530, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20530
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w20530.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robin Boadway & Motohiro Sato, 2009. "Optimal Tax Design and Enforcement with an Informal Sector," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 1-27, February.
    2. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 147-174, Fall.
    3. Kaplow, Louis, 2006. "On the undesirability of commodity taxation even when income taxation is not optimal," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1235-1250, August.
    4. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2003. "Capital income taxation when inherited wealth is not observable," Journal of Public Economics, Elsevier, vol. 87(11), pages 2475-2490, October.
    5. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
    6. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    7. Konishi, Hideo, 1995. "A Pareto-improving commodity tax reform under a smooth nonlinear income tax," Journal of Public Economics, Elsevier, vol. 56(3), pages 413-446, March.
    8. Thomas Piketty & Emmanuel Saez, 2012. "A Theory of Optimal Capital Taxation," NBER Working Papers 17989, National Bureau of Economic Research, Inc.
    9. 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.
    10. Aiyagari, S Rao, 1995. "Optimal Capital Income Taxation with Incomplete Markets, Borrowing Constraints, and Constant Discounting," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1158-1175, December.
    11. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    12. Farrell, Joseph, 1986. "How effective is potential competition?," Economics Letters, Elsevier, vol. 20(1), pages 67-70.
    13. Nordhaus, William D, 1993. "Optimal Greenhouse-Gas Reductions and Tax Policy in the "Dice" Model," American Economic Review, American Economic Association, vol. 83(2), pages 313-317, May.
    14. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
    15. Andrew Atkeson & V. V. Chari & Patrick J. Kehoe, 1999. "Taxing capital income: a bad idea," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 23(Sum), pages 3-17.
    16. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
    17. Cremer, Helmuth & Gahvari, Firouz & Ladoux, Norbert, 1998. "Externalities and optimal taxation," Journal of Public Economics, Elsevier, vol. 70(3), pages 343-364, December.
    18. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    19. Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2009. "Taxing Capital? Not a Bad Idea after All!," American Economic Review, American Economic Association, vol. 99(1), pages 25-48, March.
    20. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
    21. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-283, June.
    22. Laroque, Guy R., 2005. "Indirect taxation is superfluous under separability and taste homogeneity: a simple proof," Economics Letters, Elsevier, vol. 87(1), pages 141-144, April.
    23. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    24. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    25. De Bonis, Valeria & Spataro, Luca, 2005. "Taxing Capital Income As Pigouvian Correction: The Role Of Discounting The Future," Macroeconomic Dynamics, Cambridge University Press, vol. 9(4), pages 469-477, September.
    26. Michael Keen, 2007. "VAT, Tariffs, and Withholding; Border Taxes and Informality in Developing Countries," IMF Working Papers 2007/174, International Monetary Fund.
    27. Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 229-264.
    28. Brock, William A, 1983. "Contestable Markets and the Theory of Industry Structure: A Review Article," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 1055-1066, December.
    29. Mayeres, Inge & Proost, Stef, 1997. " Optimal Tax and Public Investment Rules for Congestion Type of Externalities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 261-279, June.
    30. Keen, Michael, 2008. "VAT, tariffs, and withholding: Border taxes and informality in developing countries," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1892-1906, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Torben M. Andersen, 2020. "Taxation of capital income in overlapping generations economies," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1245-1261, September.
    2. Firouz Gahvari & Luca Micheletto, 2019. "Heterogeneity, monetary policy, Mirrleesian taxes, and the Friedman rule," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(4), pages 983-1018, June.
    3. Chugh, Sanjay K. & Lechthaler, Wolfgang & Merkl, Christian, 2018. "Optimal fiscal policy with labor selection," Journal of Economic Dynamics and Control, Elsevier, vol. 94(C), pages 142-189.
    4. Valeria Bonis & Luca Spataro, 2018. "Optimal income taxation and migration," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 867-882, August.
    5. Junichi Minagawa & Thorsten Upmann, 2018. "Optimal taxation under a consumption target," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(4), pages 663-676, April.
    6. Bastani, Spencer & Blomquist, Sören & Micheletto, Luca, 2016. "Optimal commodity taxation with varying quality of goods," Research in Economics, Elsevier, vol. 70(1), pages 89-100.
    7. Diego Fernández Felices & Isidro Guardarucci & Jorge Puig, 2016. "El Impuesto al Valor Agregado en Argentina. Consideraciones sobre su incidencia distributiva y propuestas de reforma," Revista Actualidad Económica, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(90), pages 29-38.
    8. Albertsen, Lau H. & Andersen, Mads & Boscán, Luis R. & Santos, Athila Q., 2020. "Implementing dynamic electricity taxation in Denmark," Energy Policy, Elsevier, vol. 143(C).
    9. Gahvari, Firouz & Micheletto, Luca, 2016. "Capital income taxation and the Atkinson–Stiglitz theorem," Economics Letters, Elsevier, vol. 147(C), pages 86-89.
    10. José Mª Durán-Cabré & Julien Daubanes & Pierre-Yves Yanni & Xavier Oberson & Uwe Thuemmel, 2019. "The Taxation of Robots / La tributación de los robots / La tributació dels robots en sistemes de salut descentralitzats," IEB Reports ieb_report_2_2019, Institut d'Economia de Barcelona (IEB).
    11. Kristjánsson, Arnaldur Sölvi, 2016. "Optimal Taxation with Endogenous Return to Capital," Memorandum 06/2016, Oslo University, Department of Economics.
    12. Helmuth Cremer & Firouz Gahvari, 2017. "Restoring Ramsey tax lessons to Mirrleesian tax settings: Atkinson–Stiglitz and Ramsey reconciled," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 49(1), pages 11-35, June.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:20530. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.