Economics Dictionary of Arguments

Home Screenshot Tabelle Begriffe

Ramsey Rule: The Ramsey Rule in taxation suggests setting tax rates inversely proportional to the elasticities of demand for different goods. It advises imposing higher taxes on goods with inelastic demand (less responsive to price changes) and lower taxes on goods with elastic demand (more responsive to price changes) to minimize distortion and achieve efficient taxation. See also Taxation.
Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

Author Concept Summary/Quotes Sources

Emmanuel Saez on Ramsey Rule - Dictionary of Arguments

Saez I 131
Ramsey rule/Saez/Zucman: the cardinal rule of optimal taxation, called the Ramsey rule: governments should not tax too much what’s elastic.
Saez/Zucman: Ramsey’s approach was limited. It considered only a single tax rate, what is known as a flat tax, but the flat tax is a crude instrument. In principle, the income tax can be made progressive, with higher incomes subject to higher marginal tax rates. In practice, as we’ve seen, that’s how the income tax works in almost all democracies. Researchers in the late 1990s extended the Ramsey result and investigated the optimal tax rate for the rich when the income tax is progressive. As in the standard Ramsey rule, the top marginal income tax rate
Saez I 132
that maximizes government revenue is inversely proportional to the >elasticity of taxable income. But with a twist: the elasticity that matters is only that of the rich. Moreover, the optimal rate now also depends on the level of inequality: the higher the concentration of income, the larger the optimal rate to be imposed on the affluent.(1)

1. Diamond, Peter A. “Optimal Income Taxation: An Example with a U-shaped Pattern of Optimal Marginal Tax Rates.” American Economic Review 88, no. 1 (1998): 83–95.
Saez, Emmanuel. “Using Elasticities to Derive Optimal Income Tax Rates.” Review of Economic Studies 68, no. 1 (2001): 205–229.

Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments
The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Saez, Emmanuel

Send Link
> Counter arguments against Saez
> Counter arguments in relation to Ramsey Rule

Authors A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   Z  

Concepts A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   Z