A Reinterpretation of Elasticity Formulae in Optimum Tax Theory.

This paper presents a unified interpretation of three special cases which have been widely discussed in the theory of optimum taxation. These are the Corlett-Hague case and two versions of the inverse elasticity rule, derived on the assumption that either the compensated or the uncompensated cross elasticities of demand are zero. It is demonstrated that all three cases imply that it is the compensated elasticities which determine efficient tax differentiation, and that complementarity with the untaxed numeraire, emphasized by W. J. Corlett and D. C. Hague (1953-54), plays a role in the interpretation of all three cases. Copyright 1987 by The Review of Economic Studies Limited.