<p>A came across this explanation for how policy makers approach taxes in my textbook:</p>
<blockquote>
<p>Various taxes would compensate for irrational prices and other factors
outside the control of managers that diferentially affected enterprise
profits. Profits derived from factors such as the administrative price
structure, past state investments in fixed assets, the value of urban
land, and natural resource endowments would be taxed away so that only
profits earned by good management and hard work remained.</p>
</blockquote>
<p>Let us suppose that policy makers did want to take such an approach. What seems to be daunting is arriving at a non-arbitrary pricing solution for items such as &quot;value of urban land&quot; or &quot;natural resource endowments.&quot;</p>
<h2>Question</h2>
Could someone provide a brief worked-out example or perhaps a country that uses a similar kind of framework and what inputs they use to derive the amount to tax for those things that seem hard to quantify: urban land, resource endowment and/or how they verify that the tax obligation is not too high or low and only "good management" profits remain?

CC BY-SA 4.0
2022-09-27T08:10:22.650Z
Well it’s impossible to verify for a single tax that it does not affect “good management” profits in real life. I don’t known wider context of that text but it seems to me that the textbook just describes the principle that taxing pure rents is typically preferable as it does not create disincentives. In addition since there are equity concerns no single country could have a system that only uses non-distortionary taxation
1muflon1
CC BY-SA 4.0
2022-09-27T08:51:07.923Z
@1muflon1 Fair point, maybe can assume they don't mean only "good management" in the absolute sense, could just approach along the lines of how states strike the balance between an equitable society and taxing pure rents. Starting to sound like a pareto improvement framework, but i'm curious
Arash Howaida
CC BY-SA 4.0
2022-09-27T09:40:49.250Z
1. Could you please name the textbook?
Giskard
CC BY-SA 4.0
2022-09-27T09:42:44.270Z
2. Are you asking about empirical methods that can in theory be used to establish good valuations/optimal taxes? Or are you asking about examples of states that have claimed to have established such, even though most policies are a result of a political process and are seldom optimal in an economics sense?
Giskard
<taxation><public-economics>
Tax policy - theory versus practice
Arash Howaida
# Tax policy - theory versus practice

(Asked by: username_0 on 2022-09-27)

A came across this explanation for how policy makers approach taxes in my textbook:

> Various taxes would compensate for irrational prices and other factors
> outside the control of managers that diferentially affected enterprise
> profits. Profits derived from factors such as the administrative price
> structure, past state investments in fixed assets, the value of urban
> land, and natural resource endowments would be taxed away so that only
> profits earned by good management and hard work remained.

Let us suppose that policy makers did want to take such an approach. What seems to be daunting is arriving at a non-arbitrary pricing solution for items such as "value of urban land" or "natural resource endowments."

## Question

Could someone provide a brief worked-out example or perhaps a country that uses a similar kind of framework and what inputs they use to derive the amount to tax for those things that seem hard to quantify: urban land, resource endowment and/or how they verify that the tax obligation is not too high or low and only "good management" profits remain?

**Tags:** taxation, public-economics

> **Comments:**
> **username_1**: Well it’s impossible to verify for a single tax that it does not affect “good management” profits in real life. I don’t known wider context of that text but it seems to me that the textbook just describes the principle that taxing pure rents is typically preferable as it does not create disincentives. In addition since there are equity concerns no single country could have a system that only uses non-distortionary taxation  
> **username_0**: @username_1 Fair point, maybe can assume they don't mean only "good management" in the absolute sense, could just approach along the lines of how states strike the balance between an equitable society and taxing pure rents. Starting to sound like a pareto improvement framework, but i'm curious  
> **username_2**: 1. Could you please name the textbook?  
> **username_2**: 2. Are you asking about empirical methods that can in theory be used to establish good valuations/optimal taxes? Or are you asking about examples of states that have claimed to have established such, even though most policies are a result of a political process and are seldom optimal in an economics sense?  

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## 0 answers

