In recent years a number of public finance economists have argued for cash flow taxation whereby investment costs would be immediately deducted from taxable profit and no depreciation and financing costs would be deducted (see the Meade report (1978)). Such a profit tax has been found to be neutral in the sense that marginal investment and financing decisions are unaffected by taxation except through general equilibrium effects on interest rates.

In most countries, attempts to reform taxation and income transfer programs stir up heated controversies. The cost and effectiveness of such reforms require careful evaluation.

In their recent survey, Danziger, Haveman and Plotnick (1981) observe that the current best practice in the U.S. is to evaluate the effects of a reform by simulating its operation on a nationally weighted microdata base.

Au fur et à mesure que les interventions économiques de l’Etat s’étendent et que se multiplient ses relations avec les entreprises privées, l’idée se fait jour qu’à cette augmentation de sa capacité économique d’intervention devrait logiquement correspondre une responsabilité juridique accrue, offrant aux agents économiques de droit privé une protection plus conséquente que celle permise par la législation existante.

The purpose of this paper is to clarify the answers given in a number of seminal public finance articles to the following questions :

1. a) What is a proportional tax structure and when is it optimal ?

2. b) What is the difference between the optimality conditions for optimal public sector pricing and for optimal taxation?

These issues were along with several others considered in three articles that appeared concomitantly: Lerner (1970), Baumol and Bradford (1970) and Dixit (1970), The articles were subsequently commented upon by Ng (1972), Bradford and Baumol (1972) and Sandmo (1974).

In a recent paper Hvidding [5] derived some interesting policy implications of a non-linear Phillips curve when the unemployment rate is a random variable. Hvidding’s analysis focussed on the following model:

where p is the current inflation rate, u is the unemployment rate, p* is the expected inflation rate and a, b and c are constants. The influence of uncertainty in this model manifests itself in the expected value of u-1. For this Hvidding used an approximation suggested by Mood, Graybill and Boes ([6] page 181).