The Ramsey Rule at 100: Pairing Back the Overgrowth

74 Pages Posted: 23 Sep 2021 Last revised: 12 Oct 2021

See all articles by Chris William Sanchirico

Chris William Sanchirico

University of Pennsylvania Carey Law School; University of Pennsylvania Wharton School - Business Economics and Public Policy Department

Date Written: September 23, 2021

Abstract

In 1927 the mathematician Frank Ramsey published a paper on optimal taxation in which he put forward what has come to be known as the “Ramsey rule”. Nearly one hundred years later, Ramsey’s paper remains a go-to reference for normative tax theory in a number of fields, including legal scholarship. This paper reviews the reasoning behind the Ramsey rule and attempts to clear up various points of confusion that have grown up over decades of perfunctory citation. It explains in simple terms what the rule is and how it is derived. It then critically analyzes the rule’s most prevalent interpretations, arguing that these range from uninformative to misleading.

An online mathematical appendix is available at https://ssrn.com/abstract=3925626.

Keywords: Optimal taxation, Ramsey rule, inverse elasticity rule, distortion, deadweight loss, revenue externalities

JEL Classification: K34, H21

Suggested Citation

Sanchirico, Chris William, The Ramsey Rule at 100: Pairing Back the Overgrowth (September 23, 2021). U of Penn, Inst for Law & Econ Research Paper No. 21-25, Available at SSRN: https://ssrn.com/abstract=3925625 or http://dx.doi.org/10.2139/ssrn.3925625

Chris William Sanchirico (Contact Author)

University of Pennsylvania Carey Law School ( email )

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215-898-4220 (Phone)

HOME PAGE: http://www.law.upenn.edu/faculty/csanchir/

University of Pennsylvania Wharton School - Business Economics and Public Policy Department

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Philadelphia, PA 19104-6372
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