Retail sales Tax Rationalizations for a sales tax Administrative Considerations Collected at retail level. have to monitor fewer units Nonetheless, still difficult, and defining the tax base somewhat arbitrary Underground markets/ smuggling Optimal Tax Considerations It can be shown that the income tax is not optimal differential commodity taxes can improve welfare Inverse elasticity rule could guide the rate setting7 Retail Sales Tax • Rationalizations for a sales tax – Administrative Considerations • Collected at retail level, have to monitor fewer units. Nonetheless, still difficult, and defining the tax base somewhat arbitrary. • Underground markets / smuggling – Optimal Tax Considerations • It can be shown that the income tax is not optimal, differential commodity taxes can improve welfare. • Inverse elasticity rule could guide the rate setting