Introduction

The first chapter is concerned with an analysis of the rationale of the tax structure which we are going to study later. It presents a reflection on the design of fiscal tools, that gives a central role to informational constraints. The analysis has to be contrasted with the analysis of following chapters, which focus attention on tax incidence or tax design within given tax institutions.

This chapter addresses one question which should be of central relevance for those who are concerned with the foundations of the field and particularly for theorists. Indeed, pure theorists and mathematical economists have often viewed real tax systems either as pragmatic constructs which are not rooted in satisfactory theory or even as rough devices which could be advantageously replaced by more efficient systems. The underlying objection that applies, in particular, to the direct and indirect taxes that we are going to consider here often echoes the second theorem of welfare economics by stressing that, in the absence of lump-sum taxes, individual choices are distorted in an inefficient way. Such a sceptical appraisal parallels a long tradition, associated in particular with the names of L. Walras, H. George, etc. Again the debate is not purely intellectual. Notwithstanding the ambitious reform proposals à la Walras that advocate the switch to taxation schemes more neutral than the existing ones, the distortion issue creeps into many recurrent policy discussions.