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Abstract

We impose a horizontal equity restriction on the problem of finding the optimal utilitarian tax mix. The horizontal equity constraint requires that individuals with the same ability have to pay the same amount of taxes regardless of their preferences for leisure. Contrary to normal findings, we find that a good that is complementary to leisure can be encouraged by the tax system and that a good that normally should be discouraged by the tax system can be subsidized even if the economy is composed of only two private commodities plus leisure. Also, the marginal effective tax rate can be different from zero at the top of the ability distribution when the tax mix obeys the horizontal equity constraint. Copyright 2005 Blackwell Publishing Inc..

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 7 (2005)
Issue (Month): 4 (October)
Pages: 681-708

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Handle: RePEc:bla:jpbect:v:7:y:2005:i:4:p:681-708

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Find related papers by JEL classification:

• D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
• H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
• H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

References

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   • Jordahl, Henrik & Micheletto, Luca, 2002. "Optimal Utilitarian Taxation and Horizontal Equity," Ratio Working Papers 17, The Ratio Institute.
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Cited by:

1. Henrik Jordahl & Luca Micheletto, 2005. "Optimal Utilitarian Taxation and Horizontal Equity," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(4), pages 681-708, October.
   
   • Jordahl, Henrik & Micheletto, Luca, 2002. "Optimal Utilitarian Taxation and Horizontal Equity," Working Paper Series 2002:19, Uppsala University, Department of Economics.
   • Jordahl, Henrik & Luca Micheletto, 2002. "Optimal Utilitarian Taxation and Horizontal Equity," Royal Economic Society Annual Conference 2002 107, Royal Economic Society.
   • Henrik Jordahl & Luca Micheletto, 2003. "Optimal Utilitarian Taxation and Horizontal Equity," CESifo Working Paper Series 977, CESifo Group Munich.
   • Jordahl, Henrik & Micheletto, Luca, 2002. "Optimal Utilitarian Taxation and Horizontal Equity," Ratio Working Papers 17, The Ratio Institute.
2. Alessandro Balestrino, 2012. "Family Taxation, Fertility, and Horizontal Equity: A Political Economy Perspective," CESifo Working Paper Series 3774, CESifo Group Munich.
3. Jukka Pirttilä & Sanna Tenhunen, 2005. "Pawns and Queens Revisited: Public Provision of Private Goods when Individuals make Mistakes," CESifo Working Paper Series 1466, CESifo Group Munich.
   
   • Jukka Pirttilä & Sanna Tenhunen, 2008. "Pawns and queens revisited: public provision of private goods when individuals make mistakes," International Tax and Public Finance, Springer, vol. 15(5), pages 599-619, October.
4. Spencer Bastani & Sören Blomquist & Luca Micheletto, 2010. "Public Provision of Private Goods, Tagging and Optimal Income Taxation withHeterogeneity in Needs," CESifo Working Paper Series 3275, CESifo Group Munich.
   
   • Bastani, Spencer & Blomquist, Sören & Micheletto, Luca, 2010. "Public Provision of Private Goods, Tagging and Optimal Income Taxation with Heterogeneity in Needs," Working Paper Series, Center for Fiscal Studies 2010:14, Uppsala University, Department of Economics.
5. Hodler, Roland, 2008. "Leisure and redistribution," European Journal of Political Economy, Elsevier, vol. 24(2), pages 354-363, June.

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