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An Inverse-Ramsey Tax Rule

Author

Listed:
  • Luca Micheletto
  • Dylan T. Moore
  • Daniel Reck
  • Joel Slemrod

Abstract

Traditional optimal commodity tax analysis, dating back to Ramsey (1927), prescribes that to maximize welfare one should impose higher taxes on goods with lower demand elasticities. Yet policy makers do not stress minimizing efficiency costs as a desideratum. In this note we revisit the commodity tax problem, and show that the attractiveness of the Ramsey inverse-elasticity prescription can itself be inverted if the tax system is chosen – or at least strongly influenced – by taxpayers who are overly confident of their ability, relative to others, to substitute away from taxed goods.

Suggested Citation

  • Luca Micheletto & Dylan T. Moore & Daniel Reck & Joel Slemrod, 2025. "An Inverse-Ramsey Tax Rule," NBER Working Papers 34419, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34419
    Note: PE
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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