Tax policy, economic efficiency and the principle of neutrality from a legal and economic perspective

• Different tax systems are often, to a greater or lesser extent, de-signed according to the economist Adam Smith’s maxims regarding good taxes. One of these maxims could be described as economic efficiency. This paper discusses the criteria of economic efficiency and evaluates the possible interaction between economic efficiency and the fiscal principle of neutrality. The criteria of economic effi-ciency are assessed from a legal and economic perspective. Eco-nomic efficiency can be defined as creating possibilities for the par-ties to act towards the most efficient and mutually beneficial outcome. The neutrality principle ought to be defined as a principle derived from economic theory. Tax policy based on the neutrality principle is non-distortive and thus economically efficient. An indi-cation of non-neutrality is when the tax payers adjust their behav-iour regarding investments, financing, consumption, work or lei-sure, in response to the tax rules. Obviously the aim for non-distortive taxes is not applicable to Pigeouvian taxes since these taxes have as an objective to affect behaviour and balance an inef-ficient market outcome. Certain examples of differences in non-Pigeouvian tax treatment, presumably affecting behaviour, are further discussed.

Subject headings

SAMHÄLLSVETENSKAP  -- Juridik (hsv//swe)

SOCIAL SCIENCES  -- Law (hsv//eng)

Publication and Content Type

vet (subject category)

rap (subject category)