The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Income Taxation and Optimal Policies

  • Louis Kaplow
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2489

Abstract

Various economic literatures address the question whether first-best prescriptions for government policy require modification because redistributive income taxation distorts labour supply and cannot achieve the distributive ideal. Perhaps second-best rules for public goods provision, corrective taxation, public sector pricing, and other government activity should reflect concerns about distribution and labour supply distortion. Recent work demonstrates, however, that in basic cases first-best principles remain applicable. Demonstrations make use of income tax adjustments that preserve not only budget balance but also the pre-reform distribution of utility.

Keywords

Commodity taxation Corrective taxes Cost–benefit analysis Distortion Distribution Environmental taxation Externalities Income taxation Lump-sum tax Marginal cost pricing Optimal taxation Pigouvian tax Public goods Public sector pricing Ramsey taxation Redistribution Regulation Samuelson, P. Second best Taxation 

JEL Classifications

D61 D62 D63 H21 H23 H24 H44 H42 Q52 Q58 
This is a preview of subscription content, log in to check access

Bibliography

  1. Atkinson, A., and N. Stern. 1974. Pigou, taxation, and public goods. Review of Economic Studies 41: 119–128.CrossRefGoogle Scholar
  2. Atkinson, A., and J. Stiglitz. 1976. The design of tax structure: Direct versus indirect taxation. Journal of Public Economics 6: 55–75.CrossRefGoogle Scholar
  3. Ballard, C., and D. Fullerton. 1992. Distortionary taxes and the provision of public goods. Journal of Economic Perspectives 6: 117–131.CrossRefGoogle Scholar
  4. Boadway, R., and M. Keen. 1993. Public goods, self-selection and optimal income taxation. International Economic Review 34: 463–478.CrossRefGoogle Scholar
  5. Bös, D. 1985. Public sector pricing. In Handbook of public economics, ed. A. Auerbach and M. Feldstein, Vol. 1. Amsterdam: Elsevier.Google Scholar
  6. Bovenberg, A., and L. Goulder. 2002. Environmental taxation and regulation. In Handbook of public economics, ed. A. Auerbach and M. Feldstein, Vol. 3. Amsterdam: Elsevier.Google Scholar
  7. Christiansen, V. 1981. Evaluation of public projects under optimal taxation. Review of Economic Studies 48: 447–457.CrossRefGoogle Scholar
  8. Corlett, W., and D. Hague. 1953. Complementarity and the excess burden of taxation. Review of Economic Studies 21: 21–30.CrossRefGoogle Scholar
  9. Diamond, P. 1975. A many-person Ramsey tax rule. Journal of Public Economics 4: 283–299.Google Scholar
  10. Diamond, P., and J. Mirrlees. 1971. Optimal taxation and public production. II: Tax rules. American Economic Review 61: 261–278.Google Scholar
  11. Drèze, J., and N. Stern. 1987. The theory of cost–benefit analysis. In Handbook of public economics, ed. A. Auerbach and M. Feldstein, Vol. 2. Amsterdam: North-Holland.Google Scholar
  12. Feldstein, M. 1972. Equity and efficiency in public sector pricing: The optimal twopart tariff. Quarterly Journal of Economics 86: 175–187.CrossRefGoogle Scholar
  13. Goulder, L. 2002. Environmental policy making in economies with prior tax distortions. Cheltenham: Edward Elgar.Google Scholar
  14. Hylland, A., and R. Zeckhauser. 1979. Distributional objectives should affect taxes but not program choice or design. Scandinavian Journal of Economics 81: 264–284.CrossRefGoogle Scholar
  15. Kaplow, L. 1996. The optimal supply of public goods and the distortionary cost of taxation. National Tax Journal 49: 513–533.Google Scholar
  16. Kaplow, L. 2004. On the (ir)relevance of distribution and labor supply distortion to government policy. Journal of Economic Perspectives 18: 59–75.CrossRefGoogle Scholar
  17. Kaplow, L. 2006. On the undesirability of commodity taxation even when income taxation is not optimal. Journal of Public Economics 90: 1235–1250.CrossRefGoogle Scholar
  18. Kaplow, L. 2008. The theory of taxation and public economics. Princeton: Princeton University Press.Google Scholar
  19. Lipsey, R., and K. Lancaster. 1956. The general theory of second best. Review of Economic Studies 24: 11–32.CrossRefGoogle Scholar
  20. Mirrlees, J. 1971. An exploration in the theory of optimum income taxation. Review of Economic Studies 68: 175–208.CrossRefGoogle Scholar
  21. Pigou, A. 1920. The economics of welfare. London: Macmillan.Google Scholar
  22. Pigou, A. 1928. A study in public finance. London: Macmillan.Google Scholar
  23. Ramsey, F. 1927. A contribution to the theory of taxation. Economic Journal 37: 47–61.CrossRefGoogle Scholar
  24. Samuelson, P. 1954. The pure theory of public expenditure. Review of Economics and Statistics 36: 387–389.CrossRefGoogle Scholar
  25. Shavell, S. 1981. A note on efficiency vs. distributional equity in legal rulemaking: Should distributional equity matter given optimal income taxation? American Economic Review 71: 414–418.Google Scholar
  26. Stiglitz, J., and P. Dasgupta. 1971. Differential taxation, public goods, and economic efficiency. Review of Economic Studies 38: 151–174.CrossRefGoogle Scholar
  27. Weisbrod, B. 1968. Income redistribution effects and cost–benefit analysis. In Problems in public expenditure analysis, ed. S. Chase. Washington, DC: Brookings Institution.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Louis Kaplow
    • 1
  1. 1.