Optimal Taxation in Theory and Practice

N. Gregory Mankiw (), Matthew C Weinzierl () and Danny Yagan

No 15071, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We highlight and explain eight lessons from optimal tax theory and compare them to the last few decades of OECD tax policy. As recommended by theory, top marginal income tax rates have declined, marginal income tax schedules have flattened, redistribution has risen with income inequality, and commodity taxes are more uniform and are typically assessed on final goods. However, trends in capital taxation are mixed, and capital income tax rates remain well above the zero level recommended by theory. Moreover, some of theory's more subtle prescriptions, such as taxes that involve personal characteristics, asset-testing, and history-dependence, remain rare in practice. Where large gaps between theory and policy remain, the difficult question is whether policymakers need to learn more from theorists, or the other way around.

JEL-codes: H21 H24 H25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-cba, nep-hpe, nep-pbe and nep-pub
Date: 2009-06
Note: ME PE

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Working Paper: Optimal Taxation in Theory and Practice (2009)
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