Empirical Optimal Taxation

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TABLE OF CONTENTS

ABSTRACT3

METHODOLOGY6

Research Design6

Sample of Participants7

Instrument7

Data Analysis8

REFERENCES9

ABSTRACT

In this proposal, the analysis of optimal taxation will be done. This research proposal will be aimed at educating scholars owing a deep knowledge of economics, of its conceptual and epistemological aspects. The problem statement of this research study is that the optimal taxation helps in decreasing the society complexity and solves the social and economic problems in a dynamic perspective. The optimal taxation terms will be profoundly described and defined the study of optimal taxation which is a normative approach to tax analysis that uses standard tools found within economics to measure the inefficiencies and inequities created by a tax system. Taxation induces a variety of economic effects by distorting the choices of individuals and firms within an economy. This process of distortion is termed the excess burden of taxation, and when present, the cost to the economy of a tax exceeds the revenue it generates for the government.

Therefore, the excess burden of taxation is a form of economic inefficiency. In determining the sources of distortions that lead to inefficiencies and by attempting to quantify these results, the study of optimal taxation attempts to influence practical tax design.

The study will analyze the constantly review and revisions in a tax systems and the difficulty and complexity of balancing the efficiency issues of such a system with the other concern of optimal taxation: equity under a system of taxes. Equity issues face much greater measurement problems than efficiency issues. In this study the effects of a tax on the many individuals in an economy each with distinct preferences will be analyzed. The preferences of individuals which are summarized by economists using utility functions that generally illustrate the amount of satisfaction a person derives from consumption. Measurement problems arise as these functions have no cardinal meaning, and are not suitable for making interpersonal comparisons these problems will be discussed in detail in the research study.

The optimal tax system is the one which minimizes the aggregate loss of taxpayers' well-being for any given amount of tax revenue. The article of Ramsey will be discussed and analyzed which is about the formulation and solution of the optimal taxation. This research study will analyze the criterion of economic efficiency. Recently, the theory has been extended to take account of both distributional and efficiency considerations. Most analyses have been limited to consideration of single excise taxes levied in an economy which consists only of perfectly competitive industries. This paper will examine the optimal taxation of an economy when both perfectly and imperfectly competitive industries exist together. In such a world, there is no configuration of single excise rates which satisfies the optimal commodity taxation problem. Rather, a combination of taxes is generally required for optimal taxation of imperfectly competitive industries. Therefore, in this paper, the major focus will be on the type of tax or combination of taxes required for optimal taxation of industries with various degrees of competitiveness.

Different optimal tax formula will be analyzed and discussed ...