This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Add to Saved Citations Download to citation manager Request Permissions Request Reprints Add to My Marked Citations Citing Articles Citing Articles via Google Scholar Citing Articles via Scopus Google Scholar Articles by Holcombe, R. G. Search for Related Content Social Bookmarking                   What's this?

The Ramsey Rule Reconsidered

Florida State University

The Ramsey rule for optimal excise taxation suggests that goods should be taxed in inverse proportion to their elasticities of demand. This analysis shows that when the political process that determines tax rates is taken into account, the Ramsey rule may not be superior to a fiscal constitution that specifies that all goods are taxed at the same rate. The information necessary to set taxes in conformance with the Ramsey rule is not directly observable, which will lead to rent-seeking activities as interest groups try to influence the political determination of tax rates they face. Furthermore, incentives in the political process work against setting taxes according to the Ramsey rule. Building on Buchanan’s work on optimal taxation and the nature of the fiscal constitution, the Ramsey rule should be reconsidered as a guide to optimal excise tax policy.

Public Finance Review, Vol. 30, No. 6, 562-578 (2002)
DOI: 10.1177/109114202238003


CiteULike    Connotea    Del.icio.us    Digg    Reddit    Technorati    What's this?