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Optimal tax

Author: ZhangHeCheng
Tutor: MaGuoQiang
School: Dongbei University of Finance
Course: Finance
Keywords: Optimal Taxation The theory of Optimal Taxation Optimal commodity taxation Optimal income taxation Direct tax/indirect tax structure
CLC: F810.42
Type: PhD thesis
Year: 2007
Downloads: 1559
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Abstract


This thesis studies the theory and the practice of Optimal Taxation, and has two purposes. One is confirm a structure of the theory of optimal taxation with systemic and logistic. The other has based on this structure to use this theory on the practice. These two points are all the critical value in this article. The first value is summing-up and evolvement, on the other hand, the theoretic value of the theory of optimal taxation. The second value is the application.This thesis consists of two sections except the introduction. There are the theoretic analysis and the practice analysis. The first section is the theoretic analysis with three parts, the theoretic analysis of the intersecting of the optimal commodity taxation (indirect tax), the theoretic analysis of the optimal income taxation (direct tax) and the structure theoretic analysis between the optimal direct tax and the optimal indirect tax. In section two we analyze the practice of this theory. This section includes two chapters. One is the optimal taxation practice analysis around the world. The other is about the optimal taxation practice analysis in China. Because of the research fundamentality and the applied necessary, the theory and practice analysis are all the most important in these two sections.The theory of optimal taxation is an important part to make up of the modern revenue economics. The research has very important theory value and practical signification. Nevertheless, about this theory, the harvests are not plentiful and substantial. So that, it is necessary of establish the logistic structure of the theory of optimal taxation through a comprehensive degree dissertation to summing-up. The first step, translate the basal signification of optimal taxation and the theory of optimal taxation from the English original meaning, and the next, generalize the production and development. At the same time, introduce some new developments of the theory of optimal taxation. At last, introduce the study method and tool, and also discuss the research meaning of the optimal taxation.The first section is the theoretic analysis, includes four chapters.The first chapter is the theoretic analysis of optimal commodity taxation (indirect tax).In the theory part of this thesis, the illustration is extended little by little. The conclusions’ generalization is increased in the process of extension.First, in the context of competitive economy with one family, we get the Ramsey rule that considers only efficiency and neglects equity in determining the optimal commodity. The Ramsey rule is the necessary condition to realize the optimal commodity taxation in a competitive economy. The economy meaning of Ramsey rule is that the post-tax consumption of each commodity decreases in the same proportion, so the consumption structure, thus the initial resource distribution structure, doesn’t change, thus the economy efficiency’s loss has been lowered to a lest degree. Thought the Ramsey rule doesn’t consider the equity, it does point that the optimal commodity system is a system that makes the post-tax compensation demand decreases in the same proportion, but not a system that makes the price of each commodity decrease in the same proportion. Thus, though it’s easy to plus pre-tax price with the same tax rate, it doesn’t accord to the import of Ramsey rule. A seeming correct opinion that to minimize the distortion of tax, tax should makes all commodities’ prices decrease in the same proportion doesn’t hold.Then we illustrate inverse elasticity rule, a specific example of Ramsey rule. Because of the assumption that there is no cross price effect across different commodities, the inverse elasticity doesn’t have the approximation that exists in the Ramsey rule. At the same time, we point out that this situation isn’t likely to happen, so it’s almost impossible foe the implementation of the inverse elasticity rule. Though the government designs taxation system according to the inverse elasticity rule, it may happen the situation that the revenue relies on a few commodities and thus the tax base is limited. What’s more, the difference between the inverse elasticity rule and the Ramsey rule is that the former emphasizes the relation between tax rate and the price elasticity while the latter emphasizes substitution effect, demanding the same proportion decrease of the post-tax consumption.Then we illustrate the Diamond-Mirrlees optimal commodity taxation rule. The Diamond-Mirrlees rule is also derived in the context of competitive economy, but it considers a many-family economy and thus equity is incorporated in the Diamond-Mirrlees rule. We examine the Diamond-Mirrlees rule in two different way which both embody the trade-off between efficiency and equity which is the connection between the consumption decrease of one commodity with the social importance of the main consumer of this commodity and the their contributions to revenue. This rule remains the main character of the Ramsey rule, this is, the attention of quantity, in a more general context, while in the same time, considers equity that the Ramsey rule neglects.The last part is about the optimal commodity taxation rule in an imperfect competitive economy with many different families. Because the derivation of the optimal commodity taxation rule in an imperfect competitive economy involves tax incidence, so the analysis is a little more complex. To give a clear illustration of this issue, we first descript tax incidence in an imperfect competitive economy in a rigid language and conclude some important conclusions about the direct tax effect and indirect tax effect. On the base of above conclusions, we derive the optimal commodity taxation rule that covers the economy from a competitive one to an imperfect competitive one. Though the deviation process is complex, the fundamental sense is the same as that of the Diamond-Mirrlees rule. Its extension embodies in the fact that it considers the adjusted term of induced effect and concludes, and that the decrease of compensation consumption is in a negative relation with the degree of tax shifting. It also concludes that industry behaviors are of the same importance as preferences.Then, we simply depict some important results that are related optimal commodity taxation, for instance the optimal commodity taxation in the situations that have income taxation or externalities.The second chapter is the theoretic analysis of optimal income taxation (direct tax).This part analyzes optimal income taxation from three points of view. First, from the point of equity and efficiency, this paper argues that the standard criterion still is equity and efficiency. Then use this criterion to analyze optimal income taxation. In other words analyze the synthesized income taxation system and horizontal equity criterion, the progression of income taxation and vertical equity criterion. The former includes the capital dividends problems, problem of income disturbance and the problem of measuring of income. The latter analyzes Edgeworth model、Stern model、Mirrlees model、Kesselman model. Second, this paper analyzes the optimal taxation theory from the point of asymmetric information theory.In the second part, on the basis of refining and summarizing the above-mentioned theory, an extended demonstration on "The theory of Optimal Taxation" is specially made, the decisive role which the government plays in the choice of the direct tax/indirect tax structure is emphasized and the basic demand of optimizing the direct tax/indirect tax structure is summarized combined with the analysis on the effects of direct tax/indirect tax structure.The third chapter is the theoretic analysis of the direct tax/indirect tax structure.This part is the most important theoretic analysis in this thesis.At first, introduce and analyze some information and knowledge of the structure theory of optimal taxation and then get the conclusion is that the balance between "equity" and "efficiency". On the other hand, the first point of view is direct tax and indirect tax is reciprocity. The second point of view is the choice of direct tax and indirect tax rest with the policy aim of the government.And then, on the basis of refining and summarizing the above-mentioned theory, an extended demonstration on "The theory of Optimal Taxation" is specially made, the decisive role which the government plays in the choice of the direct tax/indirect tax structure is emphasized and the basic demand of optimizing the direct tax/indirect tax structure is summarized combined with the analysis on the effects of direct tax/indirect tax structure.The second section of this thesis is the practice analysis of the optimal taxation, includes two chapters, namely the fourth and the fifth chapter.The fourth chapter is the optimal taxation analysis of every countries in the world.This chapter consists of two parts introducing and analyzing the historical and present practice of the direct tax/indirect tax structure optimization.At first, this article traces back to the origin and development of direct tax/indirect tax structure in China’s current tax system and then gathers up its character: it is a special kind of direct tax/indirect tax structure in China’s current tax system in which the indirect tax is principal and the direct tax is assistant.The next, a thorough introduction of the situation of our country is made in three aspects: the domestic economic situation, the international economic situation and other peculiar characteristics of transitional economy.The fifth chapter, At last, makes some comments and analyses on the direct tax/indirect tax structure in China’s current tax system and points out that the direct tax/indirect tax structure is superficially and roughly rational, however, speaking of the details, a lot of problems exist in it. It is still far from being perfect and need to be optimized further.The proposal of optimizing the direct tax/indirect tax structure in China’s current tax system is on the premise that the principal position of indirect tax must be guaranteed, further optimization will be realized through respective adjustment by increasing or decreasing of direct tax and indirect tax.The proposal of optimizing the direct tax/indirect tax structure in China’s current tax system can be summed up as this: to achieve the main goal of the economic development, we should use structural tax reduction as the main means, and in the meanwhile, confirm the principle position of the indirect tax, standardize the direct tax, purify the tax surroundings, simplify the tax system, and strengthen the levy and supervise of tax.At the end of this thesis, it anticipate that the proportion of direct tax in the direct tax/indirect tax structure in China’s current tax system would be increased according to the optimization, however, the indirect tax is still the principal part. In future, our country’s direct tax/indirect tax structure will still take on such a same structure as in the past, in which the indirect tax is principal and the direct tax is assistant. However, it is a wholly new structure which will be in a different proportion: the indirect tax, approximately 60%, is the principal part; the direct tax, approximately 40%, is assistant part in which income tax is relatively momentous, approximately 30%, and property tax approximately 10%.

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CLC: > Economic > Fiscal, monetary > Finance, the state's financial > Finance Theory > Financial income and expenditure > Tax
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