Optimal Tax Theory

Optimal Tax Theory seeks to design tax systems that raise necessary revenue while minimizing economic distortions and unfairness. It balances efficiency—ensuring individuals and businesses can operate without excessive burden—and equity—fairly distributing the tax load. The theory explores how taxes can be structured to encourage productivity and growth, while also considering the impact on work incentives and resource allocation. Essentially, it aims to find the most effective way to fund government activities without harming the overall economy or discouraging personal effort.