Working Paper Series, Department of Economics, Copenhagen Business School
Pascalis Raimondos-Møller and Alan D. Woodland
Measuring Tax Efficiency
Abstract: This paper introduces an index of tax optimality that
measures the distance of some current tax structure from the optimal tax
structure in the presence of public goods. In doing so, we derive a [0, 1]
number that reveals immediately how far the current tax configuration is
from the optimal one and, thereby, the degree of efficiency of a tax
system. We call this number the Tax Optimality Index. We show how the basic
method can be altered in order to derive a revenue equivalent uniform tax,
which measures the size of the public sector. A numerical example is used
to illustrate the method developed.
Keywords: Tax optimality index; excess burden; distance function; (follow links to similar papers)
JEL-Codes: H21; H41; (follow links to similar papers)
31 pages, August 30, 2006
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