Taxation and Economic Efficiency

117 Pages Posted: 24 Mar 2001 Last revised: 5 Oct 2001

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

James R. Hines Jr.

University of Michigan; NBER

Date Written: March 2001

Abstract

This paper analyzes the distortions created by taxation and the features of tax systems that minimize such distortions (subject to achieving other government objectives). It starts with a review of the theory and practice of deadweight loss measurement, followed by characterizations of optimal commodity taxation and optimal linear and nonlinear income taxation. The framework is then extended to a variety of settings, initially consisting of optimal taxation in the presence of externalities or public goods. The optimal tax analysis is subsequently applied to situations in which product markets are imperfectly competitive. This is followed by consideration of the features of optimal intertemporal taxation. The purpose of the paper is not only to provide an up-to-date review and analysis of the optimal taxation literature, but also to identify important cross-cutting themes within that literature.

Suggested Citation

Auerbach, Alan Jeffrey and Hines, James Rodger, Taxation and Economic Efficiency (March 2001). NBER Working Paper No. w8181. Available at SSRN: https://ssrn.com/abstract=264435

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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James Rodger Hines

University of Michigan ( email )

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NBER

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Cambridge, MA 02138
United States

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