The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Neutral Taxation

  • Arnold C. Harberger
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_801

Abstract

Formally, neutral taxation is taxation falling on something that is in completely inelastic supply, with the tax being so designed as not to affect resource allocation either within or among the affected categories or between them and the other activities not subject to the tax. To minimize deadweight loss, the Ramsey rule says that, the more demand-elastic a good is, the less it should be taxed. But in practice, given ignorance about demand elasticities, uniform low-rate, broad-based taxation reliably reduces deadweight loss and implies neutrality on the part of the state between citizens’ preferred actions within the rule of law.

Keywords

Deadweight loss Efficiency vs. equity Elasticity Harberger, A. C. Land tax Neutral taxation Optimal taxation Ramsey rule taxation Uniform taxation Value-added tax 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Arnold C. Harberger
    • 1
  1. 1.