Optimal tax design attempts to resolve a well-known trade-off: namely, that high taxes are bad insofar as they discourage people from working, but good to the degree that, by redistributing wealth, they help insure people against productivity shocks. Until recently, however, economic research on...

Main description: Optimal tax design attempts to resolve a well-known trade-off: namely, that high taxes are bad insofar as they discourage people from working, but good to the degree that, by redistributing wealth, they help insure people against productivity shocks. Until recently, however,...

A classic result in trade theory is that it is socially optimal to set the tariff on a good equal to the inverse of the elasticity of its foreign supply. However, this result is based on the assumption that the government can use lump-sum taxes. The paper considers a simple open representative...