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Tax Systems$
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Joel Slemrod and Christian Gillitzer

Print publication date: 2014

Print ISBN-13: 9780262026727

Published to MIT Press Scholarship Online: May 2014

DOI: 10.7551/mitpress/9780262026727.001.0001

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General Model

General Model

Chapter:
(p.115) 7 General Model
Source:
Tax Systems
Author(s):

Joel Slemrod

Christian Gillitzer

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262026727.003.0007

This chapter shows how formal optimal tax analysis models can be extended to cover all social costs and multiple tax instruments. The key insight is that, at an optimum, for all tax policy instruments not constrained by a corner solution the marginal welfare loss per dollar of revenue raised must be the same. This analysis is then extended to allow for heterogeneous taxpayers. It concludes by discussing the difficulty of integrating the intuitively appealing notion of horizontal equity—the equal treatment of equals—into a formal optimal tax analysis.

Keywords:   Optimal tax, Heterogeneity, Horizontal equity

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