Optimal Taxation and Optimal Tax Systems
The theory of optimal taxation has , for the pas two decades , been the reigning normative approach of taxation. This paper argues that , in its current state, optimal tax theory is incomplete as a guide to action concerning many critical issues in tax policy. It is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist. The coercive nature of collection taxes implies that the resource cost of implementing a tax system have been and will continue to be a critical determinant of appropriate tax policy. The paper first presents the three cornerstone propositions of optimal tax theory, and then it discusses the influence of these propositions on recent tax policy developments. It concludes by sketching an alternative to optimal taxation, called the theory of optimal tax systems, which embraces the insights of optimal taxation but also considers the technology of raising taxes and the constraints placed upon tax policy by that technology. The optimal tax systems perspective is shown to shed light on the choice of tax instruments, the problem of tax evasion, and the appropriate tax treatment of capital income.
|Date of creation:||Jul 1989|
|Date of revision:|
|Publication status:||published as Journal of Economic Perspectives, Vol.4, No. 1, pp. 157-178, (Winter 1990).|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin Feldstein, 1978.
"The Welfare Cost of Capital Income Taxation,"
in: Research in Taxation, pages 29-51
National Bureau of Economic Research, Inc.
- Joel Slemrod, 1989.
"The Return To Tax Simplification: an Econometric Analysis,"
Public Finance Review,
, vol. 17(1), pages 3-27, January.
- Joel Slemrod, 1985. "The Return to Tax Simplification: An Econometric Analysis," NBER Working Papers 1756, National Bureau of Economic Research, Inc.
- Stern, N. H., 1976. "On the specification of models of optimum income taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 123-162.
- Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 261-267.
- C E McLure, 1984. "The evolution of tax advice and the taxation of capital income in the USA," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 2(3), pages 251-269, June.
- 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
- Roger H. Gordon & Joel Slemrod, 1988. "Do We Collect Any Revenue from Taxing Capital Income?," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 89-130 National Bureau of Economic Research, Inc.
- Lawrence H. Summers, 1987. "Should Tax Reform Level the Playing Field?," NBER Working Papers 2132, National Bureau of Economic Research, Inc.
- Slemrod, Joel & Yitzhaki, Shlomo, 1987.
" The Optimal Size of a Tax Collection Agency,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 89(2), pages 183-92.
- J. A. Mirrlees, 1976.
"Optimal Tax Theory: A Synthesis,"
176, Massachusetts Institute of Technology (MIT), Department of Economics.
- Joel Slemrod & Nikki Sorum, 1984. "The Compliance Cost of the U.S. Individual Income Tax System," NBER Working Papers 1401, National Bureau of Economic Research, Inc.
- Joseph E. Stiglitz, 1987.
"Pareto Efficient and Optimal Taxation and the New New Welfare Economics,"
NBER Working Papers
2189, National Bureau of Economic Research, Inc.
- Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042 Elsevier.
- Usher, Dan, 1986.
"Tax Evasion and the Marginal Cost of Public Funds,"
Western Economic Association International, vol. 24(4), pages 563-86, October.
- Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
- Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, vol. 69(3), pages 475-80, June.
- Heller, Walter P & Shell, Karl, 1974. "On Optimal Taxation with Costly Administration," American Economic Review, American Economic Association, vol. 64(2), pages 338-45, May.
- 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.
- Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
- Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
- Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
- Hahn, Frank H., 1973. "On optimum taxation," Journal of Economic Theory, Elsevier, vol. 6(1), pages 96-106, February.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3038. 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: ()
If references are entirely missing, you can add them using this form.