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Tax Inefficiencies and Their Implications For Optimal Taxation 589

This document discusses the economic efficiency of taxation and optimal tax policy. It covers the concepts of tax inefficiency, deadweight loss, and how elasticities determine tax inefficiency. It then discusses optimal commodity taxation, including the inverse elasticity rule, and optimal income taxes. It also discusses tax-benefit linkages and financing social insurance programs. The conclusion reiterates that the document analyzes how taxes create inefficiencies and how to design efficient tax systems and policies.

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24 views1 page

Tax Inefficiencies and Their Implications For Optimal Taxation 589

This document discusses the economic efficiency of taxation and optimal tax policy. It covers the concepts of tax inefficiency, deadweight loss, and how elasticities determine tax inefficiency. It then discusses optimal commodity taxation, including the inverse elasticity rule, and optimal income taxes. It also discusses tax-benefit linkages and financing social insurance programs. The conclusion reiterates that the document analyzes how taxes create inefficiencies and how to design efficient tax systems and policies.

Uploaded by

penelopegerhard
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CHAPTER 20 Tax Inefficiencies and Their Implications

for Optimal Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . 589


20.1 Taxation and Economic Efficiency . . . . . . . . . . . . . . . . 590
Graphical Approach 590
Elasticities Determine Tax Inefficiency 592
Application: Tax Avoidance in Practice 593
Determinants of Deadweight Loss 594
Deadweight Loss and the Design of Efficient Tax Systems 595
Application: The Deadweight Loss of Taxing Wireless Communications 600

20.2 Optimal Commodity Taxation . . . . . . . . . . . . . . . . . . . 601


Ramsey Taxation: The Theory of Optimal Commodity Taxation 601
Inverse Elasticity Rule 602
Equity Implications of the Ramsey Model 603
Application: Price Reform in Pakistan 603

20.3 Optimal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 607


A Simple Example 607
General Model with Behavioral Effects 608
An Example 610

20.4 Tax-benefit Linkages and the Financing


of Social Insurance Programs . . . . . . . . . . . . . . . . . . . . . . . 611
The Model 611
Issues Raised by Tax-benefit Linkage Analysis 613
Empirical Evidence: A Group-Specific Employer Mandate 615

20.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 616

Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 616

Questions and Problems . . . . . . . . . . . . . . . . . . . . . . . . . . 617

Advanced Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617

APPENDIX TO CHAPTER 20 The Mathematics of Optimal Taxation . . . 619

CHAPTER 21 Taxes on Labor Supply . . . . . . . . . . . . . . . . 623


21.1 Taxation and Labor SupplyTheory . . . . . . . . . . . . . . . 625
Basic Theory 625
Limitations of the Theory: Constraints on Hours Worked and
Overtime Pay Rules 627

21.2 Taxation and Labor SupplyEvidence . . . . . . . . . . . . . . 628


Empirical Evidence: Estimating the Elasticity of Labor Supply 629
Limitations of Existing Studies 630

xxii

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