The Efficiency Effects of Discrete Tax Rate Changes Without Lump-Sum Taxes and Transfers

Neil Bruce

No 782, Working Paper from Economics Department, Queen's University

Abstract: An exact expression for the normalized change in utility resulting from discrete changes in tax rates on economic activities is derived using certain linearity assumptions in preferences. This expression is used to consider alternative ways of identifying the resulting efficiency cost (or excess burden) when lump-sum taxes and transfers are assumed to be unavailable to compensate for revenue changes. Benchmark tax structures other than lump-sum taxation, specifically Ramsey optimal and uniform tax structures, are used to identify the efficiency cost of revenue neutral tax changes. The results are used to explain and extend various known results on the efficiency effects of such tax changes as well as to make an efficiency case for avoiding arbitrary departures from uniformity even when lump-sum taxes are infeasible. Finally, the theoretical shortcomings of considering revenue neutral tax changes are considered and an alternative methodology is introduced.

Date: 1990-07
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://qed.econ.queensu.ca/working_papers/papers/qed_wp_782.pdf First version 1990 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:782

Access Statistics for this paper

More papers in Working Paper from Economics Department, Queen's University Contact information at EDIRC.
Bibliographic data for series maintained by Mark Babcock ().