Abstract
AbstractThe public debates on taxation revolve around tax progressivity and the redistribution effects of taxation. It is, therefore, essential to assess the extent to which tax systems lead to social welfare gains or losses. However, the literature on taxation has yet to explore the social welfare implications of the measures of progressivity. This chapter has undertaken a pioneering effort to develop a social welfare function framework for deriving tax progressivity measures and exploring their social welfare implications. This social welfare framework has helped derive progressivity measures from eight alternative social welfare functions. Every tax progressivity measure has an implicity social welfare function that determines the society’s normative values. The chapter concludes that optimizing social welfare requires three factors: (i) a progressive tax system, (ii) minimum administrative costs for collecting taxes, and (iii) efficient investments of tax revenues to maximize the social rates of return.
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