Optimal non-linear income taxation for reduction of envy |
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Authors: | Yukihiro Nishimura |
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Institution: | Department of Economics, Queen’s University, Kingston, Ontario K7L 3N6, Canada |
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Abstract: | This paper examines the optimal non-linear income taxation problem based on λ-equitability. An allocation is λ-equitable if no agent envies a proportion λ of the bundle of any other agent. We examine the properties of Pareto undominated allocations for various λ-equitability requirements. When there is one output, the marginal income tax rate can increase only if leisure is a luxury. In a multi-commodity model with commodity taxes, the goods preferred by the low skilled agent and/or those with high Hicksian elasticities are taxed more heavily. When preferences exhibit quasi-linearity, we can show that the introduction of the λ-equitability constraint increases the marginal income tax rates of the entire population. |
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Keywords: | Income taxation Envy |
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