Critical review of the (second wave) optimal tax theories

Josheski, Dushko and Boskov, Tatjana (2020) Critical review of the (second wave) optimal tax theories. Political Economy - Development: Fiscal & Monetary Policy eJournal, 8 (20).

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James Mirrlees (1971) launched the second wave of optimal tax models by suggesting a way to formalize the planner’s problem that deals explicitly with unobserved heterogeneity among taxpayers.So, in this paper optimal income taxation theories are subject of investigation following the classic paper in public finance by Mirrlees (1971). This provides analytical solutions for the secondbest efficient tax system in presence of such an adverse selection. Until late 1990s, Mirrlees results
were not closely connected to empirical tax studies and had little impact on tax policy recommendations. Next, the famous result Diamond-Mirrlees efficiency theorem Diamond-Mirrlees (1971a), Diamond-Mirrlees (1971b),has been reviewed. This theorem is important because it states
that there should be no taxes on intermediate goods, and that private and public production should be based on same prices. Also, taxation should not violate efficiency of production. Solution to the Mankiw problem on the other hand states that small open economy, labor bears 100% of small capital income tax.

Item Type: Article
Subjects: Social Sciences > Economics and business
Divisions: Faculty of Tourism and Business Logistics
Depositing User: Dusko Josevski
Date Deposited: 09 Mar 2020 09:21
Last Modified: 09 Mar 2020 09:21

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