Principles of Efficient Tax Law: Apocrypha

58 Pages Posted: 26 Sep 2007 Last revised: 17 Dec 2007

See all articles by Terrance O'Reilly

Terrance O'Reilly

Willamette University - College of Law

Date Written: September 25, 2007


This paper examines guidelines that legal scholars have suggested for evaluating tax law in terms of economic efficiency. A common theme in tax legal scholarship is that the efficiency of the tax treatment of a transaction is related to an elasticity or elasticities of some sort. The paper concludes that such proposed principles of efficient tax law are typically unreliable: Economic theory generally does not support determining the efficiency of tax policy based on elasticities or the extent to which various goods are substitutes or complements.

The paper focuses on (1) Daniel Shaviro's efficiency analysis of realization rules based on the tax-elasticity of transactions, (2) David Weisbach's and Deborah Schenk's proposals to evaluate certain tax policies according to their effect on the elasticity of taxable income, and (3) David Weisbach's suggestion that when not all goods can be included in the tax base, goods should be taxed like their close substitutes. The paper also notes an important qualification to a result by Louis Kaplow and Steven Shavell about the advantages of redistribution using an income tax over redistribution via legal rules. Their result does not follow unless the income tax base is comprehensive. Yet some economists estimate that over a third of consumption is excluded from the tax base.

Keywords: efficient taxation, optimal taxation, deadweight loss

JEL Classification: H21, K34

Suggested Citation

O'Reilly, Terrance, Principles of Efficient Tax Law: Apocrypha (September 25, 2007). Available at SSRN: or

Terrance O'Reilly (Contact Author)

Willamette University - College of Law ( email )

245 Winter St. SE
Salem, OR 97301
United States

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