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date: 15 December 2019

Abstract and Keywords

This chapter considers the question of how tax law can be designed with an eye to maximizing economic efficiency. From the standpoint of efficiency, no lump-sum tax is better than any other—by definition all succeed equally in avoiding the creation of deadweight loss. This leads directly to two main questions. First, why are lump-sum taxes, or instruments that come as close to them as possible, so absent, not just in actual practice but even in theoretical debate about tax policy? The answer turns on the importance of distributional issues. Second, how do considerations of efficiency operate once we have accepted, for distributional reasons, the need for tax instruments that have the unfortunate side effect of discouraging productive activity?

Keywords: tax law, tax policy, economic efficiency, lump-sum tax, tax reform

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