Chapter 10 Taxation This Handbook entry presents a conceptual normative overview of the subject of taxation. It emphasizes the relationships among the main functions of taxation—notably raising revenue redistributing income and correcting externalities—and the mapping between these functions and various forms of taxation. Different types of taxation as well as expenditures on transfers and public goods are each integrated into a common optimal tax framework with the income tax and commodity taxes at the core. Additional topics addressed include a range of dynamic issues the unit of taxation tax administration and enforcement and tax equity.