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Optimal Taxation

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Abstract

Optimal taxation concerns how various forms of taxation should be designed to maximize social welfare. The task requires an integrated consideration of the revenue-raising and distributive objectives of taxation. The central instrument in developed economies is the labour income tax, the analysis of which was pioneered by Mirrlees (Review of Economic Studies 68:175–208, 1971). Subsequently, Atkinson and Stiglitz (Journal of Public Economics 6:55–75, 1976) showed how commodity taxes should be set in the presence of an optimal income tax, the results differing qualitatively from, and in important respects displacing, the teachings derived from Ramsey’s (Economic Journal 37:41–61, 1927) seminal analysis of the pure commodity tax problem.

Keywords

  • Ability
  • Commodity taxation
  • Externalities
  • Income taxation
  • Labour supply
  • Leisure
  • Linear income tax
  • Lump-sum taxes
  • Marginal cost pricing
  • Marginal tax rates
  • Marginal utility of consumption
  • Mirrlees, J.
  • Nonlinear income tax
  • Optimal government policy
  • Optimal tax systems
  • Optimal taxation
  • Pigouvian taxes
  • Public goods
  • Ramsey taxation
  • Redistribution
  • Revelation principle
  • Separable preferences
  • Social preferences
  • Social welfare function
  • Taxation of capital
  • Taxation of income
  • Transfer programmes
  • Uniform taxation
  • Value-added tax

JEL Classifications

  • H2

This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume

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  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    Louis Kaplow

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  1. Louis Kaplow
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    Kaplow, L. (2008). Optimal Taxation. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_1574-2

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    • DOI: https://doi.org/10.1057/978-1-349-95121-5_1574-2

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    • Publisher Name: Palgrave Macmillan, London

    • Online ISBN: 978-1-349-95121-5

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    Chapter History

    1. Latest

      Optimal Taxation
      Published:
      14 March 2017

      DOI: https://doi.org/10.1057/978-1-349-95121-5_1574-2

    2. Original

      Optimal Taxation
      Published:
      16 November 2016

      DOI: https://doi.org/10.1057/978-1-349-95121-5_1574-1