2. Consider "Optimal Taxation Theory"a) What is its objective?b) Summarize the main principles in applying optimal tax theory for tax design.c) Highlight the limitations to adoption of optimal taxation in small developing countries such asthe SIDS of the Caribbean.

Answered: 2. Consider "Optimal Taxation Theory"…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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2. Consider "Optimal Taxation Theory"
a) What is its objective?
b) Summarize the main principles in applying optimal tax theory for tax design.
c) Highlight the limitations to adoption of optimal taxation in small developing countries such as
the SIDS of the Caribbean.

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The study of creating and executing a tax that optimizes a social welfare metric under economic limitations is known as optimum tax theory or optimal taxation theory. The social welfare metric is usually a function of individual benefits, most often a utilitarian function, and the tax system is designed to optimize the total of individual utilities.

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