An Inverse-Ramsey Tax Rule
General Economics
2025-12-08 v1 Economics
Abstract
Traditional optimal commodity tax analysis, dating back to Ramsey (1927), prescribes that to maximize welfare one should impose higher taxes on goods with lower demand elasticities. Yet policy makers do not stress minimizing efficiency costs as a desideratum. In this note we revisit the commodity tax problem, and show that the attractiveness of the Ramsey inverse-elasticity prescription can itself be inverted if the tax system is chosen -- or at least strongly influenced -- by taxpayers who are overly confident of their ability, relative to others, to substitute away from taxed goods.
Cite
@article{arxiv.2503.22852,
title = {An Inverse-Ramsey Tax Rule},
author = {Luca Micheletto and Dylan Moore and Daniel Reck and Joel Slemrod},
journal= {arXiv preprint arXiv:2503.22852},
year = {2025}
}
Comments
20 pages, 4 figures