In section 1.2 we shall examine the optimal taxation of capital and labor incomes in a simple growth model and derive formulae for the optimal tax rates. These are used in section 1.3 to evaluate claims that abolishing capital income taxes would lead to large welfare gains. Inflation is...

Over the last decade increasing use has been made of individual householddata to analyse the gains and losses from tax reform. Much attention hasbeen paid to the econometric estimation of models of household responses totaxes. But these models yield valid estimates of the welfare consequencesof...