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  • Journal of Economic Perspectives

Optimal Taxation in Theory and Practice

By: N. Gregory Mankiw, Matthew C. Weinzierl and Danny Yagan
  • Format:Print
  • | Pages:28
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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.

Keywords

Taxation; Theory; Practice; Policy

Citation

Mankiw, N. Gregory, Matthew C. Weinzierl, and Danny Yagan. "Optimal Taxation in Theory and Practice." Journal of Economic Perspectives 23, no. 4 (Fall 2009): 147–174.
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About The Author

Matthew C. Weinzierl

Business, Government and the International Economy
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More from the Authors
  • Made In Space, Expectations Management, and the Business of In-Space Manufacturing By: Matthew C. Weinzierl and Mehak Sarang
  • Designing, Not Checking, for Policy Robustness: An Example with Optimal Taxation By: Benjami Lockwood, Afras Y. Sial and Matthew C. Weinzierl
  • Understanding Different Approaches to Benefit-Based Taxation By: Robert Scherf and Matthew C. Weinzierl
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