Optimal Taxation: From The Encyclopedia of Taxation and Tax Policy

Optimal taxation is a set of normative prescriptions for tax policy usually based on maximizing social welfare for a given revenue requirement. Optimal tax theory addresses such questions as: Should the government use income or commodity taxes? Within commodity taxes, how should tax rates vary across commodities? How progressive should the tax system be? Optimal tax theory encompasses a range of models that focus on particular aspects of the tax system.