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Utilitarianism and Horizontal Equity: The Case for Random Taxation

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Author Info
Joseph E. Stiglitz

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Abstract

This paper establishes that, far from being able to derive the principle of horizontal equity from utilitarianism, the principle is actually in- consistent with utilitarianism in a variety of circumstances. We derive conditions under which (a) it is optimal to impose random tax schedules (ex post randomization) ; and (b) it is optimal to randomize the tax schedules imposed on a set of otherwise identical individuals (ex ante randomization). The implications for optimal tax theory are discussed. More generally, it is shown that there are a number of potentially important economic situations with which the principle of horizontal equity may be inconsistent not only with utilitarianism but even with Pareto optimality.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0694.

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Date of creation: Nov 1982
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Publication status: published as Stiglitz, Joseph E. "Utilitarianism and Horizontal Equity: The Case for Random Taxation." Journal of Public Economics, Vol. 18, No. 1 (June 1982) pp. 1-33.
Handle: RePEc:nbr:nberwo:0694

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
  2. Rosen, Harvey S, 1978. "An Approach to the Study of Income, Utility, and Horizontal Equity," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 307-22, May. [Downloadable!] (restricted)
  3. David M.G. Newbery, 1978. "Stochastic Limit Pricing," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 260-269, Spring. [Downloadable!] (restricted)
  4. Salop, Steven C, 1979. "Strategic Entry Deterrence," American Economic Review, American Economic Association, vol. 69(2), pages 335-38, May. [Downloadable!] (restricted)
  5. Joesph E. Stiglitz, 1975. "Incentives, Risk, and Information: Notes Towards a Theory of Hierarchy," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 552-579, Autumn. [Downloadable!] (restricted)
  6. Stiglitz, Joseph E & Dasgupta, P, 1971. "Differential Taxation, Public Goods and Economic Efficiency," Review of Economic Studies, Blackwell Publishing, vol. 38(114), pages 151-74, April. [Downloadable!] (restricted)
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  7. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March. [Downloadable!] (restricted)
  8. Partha Dasgupta & Joseph Stiglitz, 1980. "Uncertainty, Industrial Structure, and the Speed of R&D," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 1-28, Spring. [Downloadable!] (restricted)
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  9. Weiss, Laurence, 1976. "The Desirability of Cheating Incentives and Randomness in the Optimal Income Tax," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1343-52, December. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jordahl, Henrik & Micheletto, Luca, 2002. "Optimal Utilitarian Taxation and Horizontal Equity," Ratio Working Papers 17, The Ratio Institute. [Downloadable!]
    Other versions:
  2. David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March. [Downloadable!] (restricted)
  3. Duclos, Jean-Yves & Jalbert, Vincent & Araar, Abdelkrim, 2003. "Classical Horizontal Inequity and Reranking: an Integrating Approach," Cahiers de recherche 0306, CIRPEE. [Downloadable!]
  4. Joel Slemrod & Shlomo Yitzhaki, 1985. "The Optimal Size of a Tax Collection Agency," NBER Working Papers 1759, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Jean-Yves Duclos, 2006. "Equity and Equality," IZA Discussion Papers 2284, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Alan J. Auerbach & Kevin A. Hassett, 1999. "A New Measure of Horizontal Equity," NBER Working Papers 7035, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Assaf Razin & Efraim Sadka, 1990. "Integration of the International Capital Markets: The Size of Government and Tax Coordination," NBER Working Papers 2863, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Joseph E. Stiglitz, 1983. "Public Goods in Open Economies with Heterogeneous Individuals," NBER Working Papers 0802, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Joseph E. Stiglitz, 1988. "Pareto Efficient and Optimal Taxation and the New New Welfare Economics," NBER Working Papers 2189, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Jean-Yves Duclos & Vincent Jalbert & Abdelkrim Araar, 2001. "Classical Horizontal Inequity and Reranking: an Integrated Approach," UFAE and IAE Working Papers 478.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
    Other versions:
  11. Joel Slemrod, 1985. "The Return to Tax Simplification: An Econometric Analysis," NBER Working Papers 1756, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Sami Bibi & Jean-Yves Duclos, 2003. "Equity and Policy Effectiveness with Imperfect Targeting," Cahiers de recherche 0335, CIRPEE. [Downloadable!]
    Other versions:
  13. Chander, Parkash & Wilde, Louis., 1994. "A General Characterization of Optimal Income Taxation and Enforcement," Working Papers 791, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  14. Louis Kaplow, 1999. "Accuracy, Complexity, and the Income Tax," NBER Working Papers 4631, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Alan J. Auerbach & James R. Hines Jr., 2001. "Taxation and Economic Efficiency," NBER Working Papers 8181, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Don Fullerton & James B. Mackie, 1989. "Economic Efficiency in Recent Tax Reform History: Policy Reversals or Consistent Improvements?," NBER Working Papers 2593, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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