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Optimal redistribution with unobservable preferences for an observable merit good

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  • DEL MAR RACIONERO, Maria

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), 1348 Louvain la Neuve, Belgium)

Abstract

This paper considers a government that seeks both to redistribute income and to encourage or discourage the consumption of a certain good. This good is assumed to be either a merit or demerit good. Individuals differ in their exogenous income and in their preferences for the merit good. The government can perfectly observe the level of consumption of the merit good. However, it cannot observe neither income nor preferences. The only observable variable is thus each individual's consumption of the merit good. In order to account for merit good considerations, we consider a modification of the utilitarian social welfare function in which the government imposes uniform preferences, despite the heterogeneous individual preferences, at a level which will depend on the merit or demerit nature of the observable good. We derive the optimal nonlinear redistributive policy and compare our results to the ones that would be obtained under a utilitarian social welfare function that respects the own preferences of individual.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1999009.

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Date of creation: 01 Feb 1999
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Handle: RePEc:cor:louvco:1999009

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Keywords: merit goods; non-linear tax schedule.;

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  1. repec:fth:louvco:9865 is not listed on IDEAS
  2. 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).
  3. 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.
  4. Besley, Timothy, 1988. "A simple model for merit good arguments," Journal of Public Economics, Elsevier, vol. 35(3), pages 371-383, April.
  5. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  6. CREMER, Helmuth & MARCHAND, Maurice & PESTIEAU, Pierre, 1994. "Interregional Reditribution through Tax Surcharge," CORE Discussion Papers 1994069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  8. Stiglitz, Joseph E., 1987. "Pareto efficient and optimal taxation and the new new welfare economics," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 15, pages 991-1042 Elsevier.
  9. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
  10. 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.
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Cited by:
  1. Ravi Kanbur & Jukka Pirttilä & Matti Tuomala, 2006. "Non-Welfarist Optimal Taxation And Behavioural Public Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 849-868, December.
  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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