On the value of the optimal tax rate

John Papanastasiou, Νικόλαος Δριτσάκης, L. Warner Stanley


The value of studies for reducing uncertainty about the revenue maximizing tax rate is considered
from the viewpoint of a decision-maker who can set the rate. A simple approximation of the maximum
value of such studies for a decision - maker who thinks the existing rate is optimal is given by
(l/4)VAR(Θ)To where VAR(Θ) is the variance of the decision-makers prior distribution on the elasticity
of income with respect to the tax rate and T0 is current tax revenue.


Tax; Econometrics

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