A REVELATION APPROACH TO OPTIMAL TAXATION

Since the seminal work of Ramsey (1927) and especially Diamond and Mir rlees (1971), a large body of literature has striven to identify rules characterizing optimal tar structures. The fundamental limitation of such an approach has been the lack of information necessary to impleme nt the rules derived in the optimal tar literature. This article offer s an alternative approach to the optimal tar problem. The authors pres ent a mechanism that induces individuals to honestly reveal the total tau burden they bear under alternative tar structures. Under certain c onditions, the mechanism could conceptually be used to find Ramsey's s olution to optimal commodity taxation. The article also illustrates ho w the revelation approach can be operationalized by experiments design ed to test theorems derived in the optimal tar literature.