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Optimal Redistribution with Unobservable Preferences for an Observable Merit Good

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  • Maria Racionero

Abstract

This paper considers a government thatseeks both to redistribute income and to encourage or discouragethe consumption of a certain good. This good is assumed to beeither a merit or demerit good. Individuals differ in their exogenousincome and in their preferences for the merit good. The onlyvariable the government can perfectly observe is each individual'sconsumption of the merit good. In order to account for meritgood considerations, we consider a modification of the utilitariansocial welfare function in which the government imposes uniformpreferences, despite the heterogeneous individual preferences,at a level which will depend on the merit or demerit nature ofthe observable good. We derive the optimal nonlinear redistributivepolicy and compare our results to the ones that would be obtainedunder a utilitarian social welfare function that respects theown preferences of individuals. Copyright Kluwer Academic Publishers 2000

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File URL: http://hdl.handle.net/10.1023/A:1008733405651
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 7 (2000)
Issue (Month): 4 (August)
Pages: 479-501

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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:4:p:479-501

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: merit goods; non-linear tax schedule;

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  1. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  3. repec:fth:louvco:9865 is not listed on IDEAS
  4. Joseph E. Stiglitz, 1988. "Pareto Efficient and Optimal Taxation and the New New Welfare Economics," NBER Working Papers 2189, National Bureau of Economic Research, Inc.
  5. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  6. FLEURBAEY, Marc & MANIQUET, François, 1998. "Optimal income taxation: and ordinal approach," CORE Discussion Papers 1998065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Helmuth Cremer & Maurice Marchand & Pierre Pestieau, 1996. "Interregional redistribution through tax surcharge," International Tax and Public Finance, Springer, vol. 3(2), pages 157-173, May.
  8. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, vol. 72(2), pages 372-77, May.
  9. Joseph E. Stiglitz, 1982. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  10. Besley, Timothy, 1988. "A simple model for merit good arguments," Journal of Public Economics, Elsevier, vol. 35(3), pages 371-383, April.
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Cited by:
  1. Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2004. "Non-Welfarist Optimal Taxation and Behavioral Public Economics," CESifo Working Paper Series 1291, CESifo Group Munich.
  2. Sao-Wen Cheng & Andreas Wagener, 2000. "Altruism and Donations," Volkswirtschaftliche Diskussionsbeiträge 92-00, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.

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