Equity-efficiency dilemma and tax harmonization

Abstract The present paper attempts to demonstrate that finding an appropriate trade-off between direct and indirect taxes can help smooth policy makers’ way through reconciling the contradictory notions of equity efficiency. Our theoretical empirical analysis is based on assumption discourage work effort, thus impinging incentives supply labour, save invest, finally, grow, whereas consumption bear more heavily poor. Central our discussion argument carefully designed adjustments in tax mix reduce distortions consumption-leisure decision, leading optimal allocation resources efficiency objectives. To derive a competitive equilibrium setting, social welfare function maximized first-order conditions are manipulated trace out direct-indirect rates pave for equity-efficiency goals be reconciled with each other.