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Article
License: CC BY NC
Data sources: UnpayWall
https://doi.org/10.2139/ssrn.3...
Article . 2002 . Peer-reviewed
Data sources: Crossref
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Optimal Taxation and the Le Chatelier Principle

Authors: Diamond, Peter A.; Mirrlees, James A.;

Optimal Taxation and the Le Chatelier Principle

Abstract

It is a natural presumption that there should be less distorting taxation when there are more decisions based on the prices distorted by taxation. This note shows the need for an additional assumption in order to reach the conclusion. We consider a competitive model with one consumption good, labor, and human capital. We contrast the situation where human capital is chosen with that where the human capital level is a parameter, using the Le Chatelier principle. While the Le Chatelier principle signs the difference in substitution effects between the two models, there are other terms that are relevant as well. The assumption that the income derivative of human capital is small relative to its substitution effect is sufficient to sign the response of social welfare to wage taxation with fixed human capital at the value of the optimal wage tax with human capital chosen, thereby giving the presumptive result.

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
7
Average
Top 10%
Average
hybrid