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Optimal Utilitarian Taxation and Horizontal Equity

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  • Jordahl, Henrik

    (Department of Economics)

  • Micheletto, Luca

    ()
    (L. Bocconi University)

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 need not be discouraged by the tax system, and that a good that normally should be discouraged by the tax system need not be taxed at a positive rate even if the economy is composed of only two private commodities plus leisure. Similarly, the marginal effective tax rate need not be equal to zero at the top when the tax mix obeys the horizontal equity constraint.

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Bibliographic Info

Paper provided by The Ratio Institute in its series Ratio Working Papers with number 17.

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Length: 48 pages
Date of creation: 30 Dec 2002
Date of revision:
Publication status: Published in Journal of Public Economic Theory, 2005, pages 681-708.
Handle: RePEc:hhs:ratioi:0017

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Keywords: horizontal equity; optimal taxation; heterogeneous preferences; utilitarianism;

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References

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Citations

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Cited by:
  1. 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.
  2. Jordahl, Henrik & Luca Micheletto, 2002. "Optimal Utilitarian Taxation and Horizontal Equity," Royal Economic Society Annual Conference 2002 107, Royal Economic Society.
  3. 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.
  4. Alessandro Balestrino, 2012. "Family Taxation, Fertility, and Horizontal Equity: A Political Economy Perspective," CESifo Working Paper Series 3774, CESifo Group Munich.
  5. Hodler, Roland, 2008. "Leisure and redistribution," European Journal of Political Economy, Elsevier, vol. 24(2), pages 354-363, June.

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