On Policy Relevance of Ramsey Tax Rules

Selim, S. 2007. On Policy Relevance of Ramsey Tax Rules. Economics Discussion Papers. 2007 (31).

TitleOn Policy Relevance of Ramsey Tax Rules
AuthorsSelim, S.
Abstract

The Ramsey approach to optimal taxation and Ramsey tax rules have amassed substance in economic theory. However, they are often criticized on grounds of practicality, fairness, feasibility and some other aspects of designing actual tax policy. This paper presents a collection of these views; it discusses how closely or remotely Ramsey rules are followed in designing tax policy. It presents some recent tax reforms in the US and in the UK that have closely, if not completely, followed the principle of distortion minimization. Despite the widely speculated difficulty associated with mapping normative tax rules into positive policy design, it is possible to implement taxes that have strong correspondence to Ramsey tax formulas. This paper also discusses why some implemented tax rules lack onsistency with Ramsey principles, or why it is often difficult to establish correspondence between some implemented taxes and Ramsey tax rules.

KeywordsRamsey Taxation, Policy Relevance, Capital Income Tax.
Article number2007-31
JournalEconomics Discussion Papers
Journal citation2007 (31)
ISSN1867-8009
Year2007
PublisherKiel Institute for the World Economy
Publisher's versionfile.pdf
Web address (URL)http://www.economics-ejournal.org/economics/discussionpapers/2007-31/file
Publication dates
Published online13 Jul 2007
Published13 Jul 2007

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