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Optimal Tax Rates and the ETI

In: The Elasticity of Taxable Income

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Abstract

This chapter explores the use of the elasticity of taxable income in welfare comparisons and optimal tax discussions. It draws together, using a consistent framework and notation, a number of results concerning marginal welfare changes and optimal tax taxes. In addition, emphasis is given to the specification of value judgements. Further results, particularly in terms of the welfare effects of non-marginal tax rate changes and the treatment of rates other than the top marginal rate in a multi-rate structure, are derived. In specifying an optimal rate, a hypothetical judge is assumed to take a view about only the value of additional government tax-financed expenditure resulting from the extra revenue from a small tax increase, and the weight attached to the loss of welfare resulting from the small tax increase. The optimal rates are determined independent of a revenue requirement.

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  • ., 2022. "Optimal Tax Rates and the ETI," Chapters, in: The Elasticity of Taxable Income, chapter 5, pages 89-120, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:21391_5
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    Economics and Finance;

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