Working Paper: NBER ID: w20530
Authors: Joseph E. Stiglitz
Abstract: Frank Ramsey's classic paper "A contribution to the theory of taxation" gave rise to the modern theory of optimal taxation. This paper traces the literature that grew out of Ramsey's 1927 paper and assesses which of its key insights has proven robust. Though the path breaking work of Peter Diamond and James Mirrlees showed that Ramsey's results could be generalized in some important ways, other work showed that the domain of applicability of Ramsey's original insights may be more limited: changes in assumptions about the set of feasible taxes (not allowing certain taxes, or allowing a progressive income tax or non-linear commodity taxes), and in particular about the taxation of pure rents, incorporating more explicitly distributional considerations, and/or recognizing the important ways in which our economy differs from the competitive model underlying Ramsey's analysis all change the optimal structure of commodity taxation in important ways.
Keywords: No keywords provided
JEL Codes: E62; H21; H22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| efficient taxation requires a complete array of taxes rather than a single tax (H29) | implications on economic efficiency and equity (D61) |
| a large number of small distortions is preferable to a single large distortion (H21) | optimal taxes should reduce consumption along the compensated demand curve equiproportionately (H21) |
| optimal taxes are inversely related to the elasticity of demand and supply (H31) | direct effect of taxation on consumption patterns (H31) |
| if labor is supplied inelastically (J20) | optimal taxation necessitates imposing a tax on labor alone (H31) |
| a proportionate tax on all commodities can function equivalently to a tax on labor (H29) | optimal taxation (H21) |
| changes in assumptions about feasible taxes (H29) | alter the optimal structure of commodity taxation (H21) |