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If the government had perfect information about the characteristics of each individual, there is a strong argument that it would not impose distortionary taxes. Individuals who can pay more in taxes should pay in more taxes that those who cannot easily pay. If the government could ascertain who could pay more, it would simply impose higher taxes on those individuals. The government can base its taxes only on observable variables such as income and expenditure. The choice is either to have uniform lump sum taxes or to have a tax that depends on easily measurable variables such as expenditure and wages
Faimus answered the question on February 25, 2019 at 19:35
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