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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.

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Bibliographic Info

Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 11062.

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Length: 33 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:mse:cesdoc:11062

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Related research

Keywords: Random taxation; stochastic contract; second best; tax evasion.;

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  1. When random taxation is better
    by Economic Logician in Economic Logic on 2011-11-25 16:30:00

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  1. Economic Logic blog

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