New tax rule maximizes social welfare and minimizes deadweight loss
Commodity taxes serve three main purposes: collecting money, redistributing wealth, and managing resources. A new study introduces the generalized Ramsey rule for deciding on the best way to tax goods. By looking at how taxes affect the economy as a whole, the researchers found that many common ideas about taxes still apply in this broader context. They also shed light on why deadweight loss happens and how different ways of sharing wealth can impact the best tax strategy.