Abstract :
This paper extends the Ramsey tax rule and develops a tax rate by minimizing total excess burden, subject to government tax revenues. This tax rate is a function of its own and other fuelʹs price elasticities of compensated demand and supply, its own price and consumption level, other fuelsʹ prices and consumption levels, and government revenues. It is this proposed tax rate, not the Ramsey tax ratio, that guides a government to levy a tax efficiently through a minimization of total excess burden. In the case of an energy tax, this tax rate provides direct guidance for taxation on various fuels. Moreover, total excess burden generated by the proposed tax rate is significantly less than that produced by the Clinton Administrationʹs proposal.
