The Optimal Pattern of Commodity Taxes
The second main question of distorting taxation is that of optimality. Suppose the government has to raise a given amount of tax revenue 
, subject to the constraint that it must use distorting unit taxes paid by the consumer. If the government is free to tax or subsidize any good (or factor), what pattern of taxes raises the required revenue in such a way as to minimize deadweight loss in the economy? This is commonly referred to as the optimal commodity tax problem, with the understanding that “commodities” include both goods and factors.
, subject to the constraint that it must use distorting unit taxes paid by the consumer. If the government is free to tax or subsidize any good (or factor), what pattern of taxes raises the required revenue in such a way as to minimize deadweight loss in the economy? This is commonly referred to as the optimal commodity tax problem, with the understanding that “commodities” include both goods and factors.Having defined the appropriate loss function for a one-consumer, linear ...
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