Optimal Taxation and the Le Chatelier Principle

  title={Optimal Taxation and the Le Chatelier Principle},
  author={P. Diamond and J. Mirrlees},
  journal={MIT Economics Department Working Paper Series},
It is a natural presumption that there should be less distorting taxation when there are more decisions based on the prices distorted by taxation. This note shows the need for an additional assumption in order to reach the conclusion. We consider a competitive model with one consumption good, labor, and human capital. We contrast the situation where human capital is chosen with that where the human capital level is a parameter, using the Le Chatelier principle. While the Le Chatelier principle… Expand