The role of optimal taxation theory in the formulation of Income Tax and Value Added Tax: A comparative study on Turkey and United Kingdom

It can be said that there is a conflict between tax equality and tax efficency and some economists have persented the theory of optimal taxation (as an approach) to achieve the balance between tax equality and tax efficiency purposes. Otherwise the concept of optimal taxation is associated with the concept of social welfare and optimal taxation concept can be useful for maximizing the social welfare in the national economy. On the side of indirect taxes it is agreeable that indiredt taxes rates should be flat to minimize the degree in which those taxes distort the economic activities. On the side of direct taxes it can be acceptable that income tax with progressive rate reduces the labor supply and causes decreasing in the level of social welfare, income tax rates should be more flat and the marginal income tax rates should decline at high levels of income. In this search the characters of value added tax and income tax will be explained in both of Turkey and United Kingdom to determine if those taxes are optimal according to the critics of optimal taxation theory. Key Words: Optimal Taxation, Social Welfare, Excess Burden, Income Tax, Value Added Tax