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.
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Harberger, A.C. (2018). Neutral Taxation. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_801
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DOI: https://doi.org/10.1057/978-1-349-95189-5_801
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