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Second-best Random Redistribution

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Abstract

Random taxation may be optimal when the taxpayers differ in their attitudes towards risk, so that tax randomization enables the government to relax the incentive constraints. The paper provides a necessary and sufficient condition for local random deviations to be welfare improving in a neighborhood of a nonrandom optimum. It also derives conditions satisfied by a global random optimum. A full analytical derivation is given for a two goods two agents economy with isoelastic utilities

Suggested Citation

  • Stéphane Gauthier & Guy Laroque, 2011. "Second-best Random Redistribution," Documents de travail du Centre d'Economie de la Sorbonne 11062, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:11062
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    1. When random taxation is better
      by Economic Logician in Economic Logic on 2011-11-25 22:30:00

    More about this item

    Keywords

    Random taxation; stochastic contract; second best; tax evasion;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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