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On Policy Relevance of Ramsey Tax Rules

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  • Selim, Sheikh

Abstract

The Ramsey approach to optimal taxation and Ramsey tax rules have amassed substance in economic theory. However, they are often criticized on grounds of practicality, fairness, feasibility and some other aspects of designing actual tax policy. This paper presents a collection of these views; it discusses how closely or remotely Ramsey rules are followed in designing tax policy. It presents some recent tax reforms in the US and in the UK that have closely, if not completely, followed the principle of distortion minimization. Despite the widely speculated difficulty associated with mapping normative tax rules into positive policy design, it is possible to implement taxes that have strong correspondence to Ramsey tax formulas. This paper also discusses why some implemented tax rules lack consistency with Ramsey principles, or why it is often difficult to establish correspondence between some implemented taxes and Ramsey tax rules.

Suggested Citation

  • Selim, Sheikh, 2007. "On Policy Relevance of Ramsey Tax Rules," Economics Discussion Papers 2007-31, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:5736
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    More about this item

    Keywords

    Optimal Taxation; Policy Relevance; Ramsey Tax Rules;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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