RePEc: Research Papers in Economics · 1987 · 207 citations · 0 references
Public AffairsEconomicsPublic FinancePublic EconomicsTax PolicyTaxationIncome TaxationOptimal TaxationTax EfficiencyWelfare EconomicsOptimal Commodity TaxationProgressive Tax IncidenceRamsey TaxationRevenue-maximizing Taxation
The literature seeks to characterize tax structures that maximize the welfare of a target group while meeting revenue targets and ensuring specified utility levels for other groups, given limited information and enforcement capabilities. This paper surveys recent developments in the theory of Pareto‑efficient taxation. Utilitarian or other social welfare functions are employed to select among Pareto‑efficient tax structures. Although the original aim of establishing a scientific basis for progressive taxation has not been realized, the work provides insights that can help governments choose better tax policies and casts doubt on the relevance of longstanding results such as Ramsey’s commodity‑tax theory.
This paper surveys recent developments in the theory of pareto efficient taxation. This literature attempts to characterize those tax structures which, given the limitations on the government's information and other limitations on the government's ability to impose taxes, maximize the welfare of one individual (group of individuals) subject to the government obtaining a given revenue and subject to other (groups of) individuals attaining certain specified levels of utility. Utilitarian (or other) social welfare functions can then be used to select among these pareto efficient tax structures. While the original goal of this line of research, which was to provide a scientific basis for arguing for a progressive tax structure, has not been achieved--and does not seem achievable--important insights have been gleaned, which should enable governments to make better choices of tax policies in the future. On the other hand, this research has cast serious doubt on the relevance of many long standing results, including those of Ramsey concerning the structure of commodity taxes.