From this point of view, it is increasingly necessary to discuss possible reforms in the direction of increasing the share of direct taxes at the expense of indirect taxes and rethinking proportional taxation
The taxation system should be favorable to efficient allocation of resources, which is why the government option for progressive or proportional taxation
in order to obtain public revenue from private sector must take account of the economic cost which is likely to reduce the effectiveness of revenue collected, known as the cost of efficiency or the excessive burden of taxation.
It is interesting that the economists, in general, were more caught up in the utilitarian notion that the happiness of society would be enhanced by reducing the burdens on the poor, while the lawyers retained the tradition from history and political philosophy that, in the absence of firm rules (such as proportional taxation
), the problems of "faction" as discussed by Madison in Federalist No.
Smith, etc.), creators of the modern liberal doctrine (libertarianism) have pleaded for the withdrawal of the state from the economic activity, the renunciation of using the taxes as an instrument of intervention in the economy, the replacement of the progressive income taxation of natural persons with proportional taxation
, the reduction of the taxation rates, etc.
Thus, on a "benefit received principle", this would justify proportional taxation
. See Tanzi, 2011.
Hayek, although favoring a system of proportional taxation
, said that progressive taxation "is the primary means of income redistribution, and in the absence of such, a policy would be extremely limited." [F.
We extend then in Section 4 the case of proportional taxation
to the case of income-tax progression and derive a necessary condition for an optimal subsidy rate.
The Political Criteria: Self-Taxation, Healthy Finances, and clear Laws Oriented to Proportional Taxation
This situation may occur in particular for proportional taxation
, uniform value-added tax (VAT), and fixed-rate sharecropping arrangements.
One special feature of the tax reforms in the Nordic countries was that the previous progressive taxation of the sum of the taxpayer's income from all sources was replaced by separate proportional taxation
of income from capital and progressive taxation of earned income.
With proportional taxation
, the ratio of the high to low wage rate is 1.309.