Discussion Paper

No. 2007-31 | July 13, 2007
On Policy Relevance of Ramsey Tax Rules


The Ramsey approach to optimal taxation and Ramsey tax rules have amassed substance in economic theory. However, they are often criticized on grounds of practicality, fairness, feasibility and some other aspects of designing actual tax policy. This paper presents a collection of these views; it discusses how closely or remotely Ramsey rules are followed in designing tax policy. It presents some recent tax reforms in the US and in the UK that have closely, if not completely, followed the principle of distortion minimization. Despite the widely speculated difficulty associated with mapping normative tax rules into positive policy design, it is possible to implement taxes that have strong correspondence to Ramsey tax formulas. This paper also discusses why some implemented tax rules lack onsistency with Ramsey principles, or why it is often difficult to establish correspondence between some implemented taxes and Ramsey tax rules.

JEL Classification

E61 E62 H21 H30

Cite As

Sheikh Selim (2007). On Policy Relevance of Ramsey Tax Rules. Economics Discussion Papers, No 2007-31, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2007-31


Comments and Questions

Anonymous - Referee Report
August 23, 2007 - 11:29

see attached file

Sheikh Selim - Reply to Referee
August 31, 2007 - 05:54

Reply to Referee comments

Anonymous - Referee Report
November 07, 2007 - 08:15

see attached file

Anonymous - Associate Editor's Decision
November 13, 2007 - 10:29

Neither referee recommended publication.
I also read the paper, and, although I do not necessarily agree with all of the comments of the referees, I share some of these concerns. At bottom, I share especially the concerns of the referees on the contribution of the paper. Given these ...[more]

... concerns, I decided to reject the paper.