Incentives and income taxation: the implementation of individual revenue requirement functions |
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| Institution: | 1. University of Michigan, United States of America;2. NBER, United States of America;3. Sookmyung Women''s University, South Korea;1. Department of Experimental Psychology & All Souls College, University of Oxford, Oxford, UK;1. Department of Population and Quantitative Health Sciences, Case Western Reserve University, 1090 Euclid Avenue, Cleveland, OH 44106, United States;2. Department of Social Work, University of North Dakota, Gillette Hall Room 302, 225 Centennial Dr. Stop 7135, Grand Forks, ND 58202-7135, United States;3. Jack, Joseph and Morton Mandel School of Applied Social Sciences, 11235 Bellflower Road, Cleveland, OH, United States;4. College of Social Work, University of Utah, 201 Presidents Circle, Salt Lake City, UT 84112, United States;1. Laboratory of Forest Policy, Department of Forest Management, Bogor Agricultural University (IPB), Kampus IPB Darmaga, Bogor 16680, Indonesia;2. Forestry & Environment Research Development & Innovation Agency, Bogor, Indonesia;3. Department of Forensic Medicine and Medicolegal Studies, Faculty of Medicine, University of Indonesia, Indonesia;4. Faculty of Forestry, Gadjah Mada University, Yogyakarta, Indonesia;5. School for Environment and Sustainability, University of Michigan, Ann Arbor, USA |
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| Abstract: | Consider an economy where a fixed amount of revenue is to be raised, perhaps to finance a public good, by a tax on income. The only two goods in the economy are labour (or capital) and a consumption good, and workers are differentiated by only one parameter. A map describing ability to pay, from the agent types to tax liability, is given. Under what conditions on preferences can such a map be implemented by an income tax, in the sense that each agent pays exactly what is desired, after all behavioural adjustments? We find sufficient conditions on preferences and the map, as well as necessary conditions. The only restriction on tax functions is that they be measurable; bunching and gaps are allowed. Applications to both normative and positive public finance are discussed. |
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