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Optimal random taxation and redistribution

Author

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  • Stéphane Gauthier

    (Institute for Fiscal Studies)

  • Guy Laroque

    (Institute for Fiscal Studies)

Abstract

We assess the usefulness of stochastic redistribution among a continuum of riskaverse agents with quasilinear utilities in labor. Agents differ according to their consumption tastes, which remain private information. We identify circumstances where stochastic redistribution is socially dominated by the deterministic policy where aftertax income lotteries are replaced with their certainty equivalent. We also provide a parametric example where feasible and incentive compatible lotteries locally dominate the optimal deterministic menu. In this example the downward pattern of incentives prevailing in the deterministic case is reversed to an upward pattern in the stochastic case.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stéphane Gauthier & Guy Laroque, 2022. "Optimal random taxation and redistribution," IFS Working Papers W22/35, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:22/35
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    References listed on IDEAS

    as
    1. Gauthier, Stéphane & Laroque, Guy, 2014. "On the value of randomization," Journal of Economic Theory, Elsevier, vol. 151(C), pages 493-507.
    2. Lang, Matthias, 2017. "Legal uncertainty as a welfare enhancing screen," European Economic Review, Elsevier, vol. 91(C), pages 274-289.
    3. , & , J., 2015. "Maximal revenue with multiple goods: nonmonotonicity and other observations," Theoretical Economics, Econometric Society, vol. 10(3), September.
    4. Hines Jr., James R. & Keen, Michael J., 2021. "Certain effects of random taxes," Journal of Public Economics, Elsevier, vol. 203(C).
    5. Florian Ederer & Richard Holden & Margaret Meyer, 2018. "Gaming and strategic opacity in incentive provision," RAND Journal of Economics, RAND Corporation, vol. 49(4), pages 819-854, December.
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    9. Hellwig, Martin F., 2007. "The undesirability of randomized income taxation under decreasing risk aversion," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 791-816, April.
    10. repec:hal:pseose:hal-00969344 is not listed on IDEAS
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