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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

(p.115) 7 General Model
Tax Systems

Joel Slemrod

Christian Gillitzer

The MIT Press

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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