to engage in productive business activities, or penalties for evading taxes should be so high as to send unsuccessful evaders into financial ruin. Within the context of this maxim, Smith believed that it was possible for government, through taxation, to create a temptation to break the law and then punish people for giving in to temptation. To illustrate this point, he pointed to high taxes on imported goods that tempted people to engage in smuggling, who the government then punished severely.
Adam Smith delivered his criteria for an effective system of taxation in 1776. Some 210 years later, Joseph Stiglitz provided contemporary theoretical criteria for an effective system of taxation. The Stiglitz criteria did no differ markedly from those of Adam Smith.
Joseph Stiglitz offered five criteria for a fair and effective system of taxation. These criteria are as follows:
1. Economic efficiency: Stiglitz holds that a tax should not prevent efficient allocation of resources.
2. Administrative simplicity: Stiglitz holds that a t
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