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Public Good Provision Financed by Nonlinear Income Tax Under Reduction of Envy

Author

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  • Obara Takuya

    (Faculty of Economics, Tohoku Gakuin University, Sendai, Japan)

  • Tsugawa Shuichi

    (Department of Urban and Environmental Engineering, Kyushu University, Fukuoka, Japan)

Abstract

We examine optimal taxation and public good provision by a government that considers reduction of envy as a constraint. We adopt the extended envy-freeness proposed by Diamantaras and Thomson (1990. “A Refinement and Extension of the No-Envy Concept.” Economics Letters 33: 217–22), called λ-equitability. We derive the modified Samuelson rule under an optimal nonlinear income tax and show, using a constant elasticity of substitution utility function, that the direction of distorting the original Samuelson rule to relax the λ envy-free constraint is crucially determined by the elasticity of substitution. Furthermore, we numerically show that the optimal level of provision increases (decreases) in the degree of envy-freeness when the original Samuelson rule is upwardly (downwardly) distorted.

Suggested Citation

  • Obara Takuya & Tsugawa Shuichi, 2019. "Public Good Provision Financed by Nonlinear Income Tax Under Reduction of Envy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(4), pages 1-16, October.
    • Handle: RePEc:bpj:bejeap:v:19:y:2019:i:4:p:16:n:5
    DOI: 10.1515/bejeap-2018-0252
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    Cited by:

    1. Obara, Takuya & 小原, 拓也 & Tsugawa, Shuichi & Managi, Shunsuke, 2019. "Envy-free Pricing for Impure Public Good," CCES Discussion Paper Series 69, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    2. Takuya Obara & Shuichi Tsugawa & Shunsuke Managi, 2021. "$$\lambda $$ λ envy-free pricing for impure public good," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 11-25, April.

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    More about this item

    Keywords

    income taxation; public good provision; envy free; intensity of envy; elasticity of substitution;
    All these keywords.

    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
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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