Discussion on the Practical Significance of Western Optimal Taxation Theory

Ever since the reformation and opening of China in the late seventies, especially with the introduction of western economics theories into China, western taxation system, including the optimal taxation theory has been gradually drawn attention to. However as an Nobel prize winning theory, it is not as close to reality as to be applied into a guidance principle in practice. In fact, current studies on the western optimal taxation theory and their preliminary applications in China, as shown in literatures, have remarkable deficiency. Here we report some systematic comments and analysis on the western optimal taxation theory and the latest research processes by western scholars, based mainly on original publications. We illustrate that, as a deduction from assumptions, the optimal taxation theory only applies to a strictly supposed circumstance. In other words, without certain qualifications, conclusions in the theory couldn´t be drawn; or different conclusions would be made in various conditions. Both the proportional rule and anti-elasticity rule in the system of optimal merchandise taxation and the linear model in optimal income taxation theory share the same disadvantage when facing the reality. Therefore, any theorem in optimal taxation theory is not universal and general; on the contrary, as an individual conclusion with special premise, it shouldn´t be regarded as the direct and specific guidance to a nation´s taxation reforming. Taxation reformation in China is most special case with extremely complicated variables in it economic system and historical, social and political characteristics. So finally we propose that especially caution must be taken in the course of applying western optimal taxation theory in China