an optimal tax is one that minimizes the
Optimal tax Optimal tax theory or the theory of optimal taxation is the study of designing and implementing a tax that reduces inefficiency and distortion in the market under given economic constraints.[1] Generally, this criterion consists of individuals' utility and the optimization problem involves minimizing the distortions caused by taxation.[2][3] A neutral tax is a theoretical tax which avoids distortion and inefficiency completely.[4][5] Other things being equal, if a tax-payer must choose between two mutually exclusive economic projects (say investments) that have the same pre-tax risk and returns, the one with the lower tax or with a tax exemption would be chosen by a rational actor.[3] Thus economists argue that taxes generally distort behavior.