Budget Balancedness and Optimal Income Taxation
We make two contributions to the theory of optimal income taxation. First, assuming conditions sufficient for existence of a Pareto optimal income tax and public goods mechanism, we show that if agents' preferences satisfy an extended notion of single crossing called capacity constrained single crossing, then there exists a Pareto optimal income tax and public goods mechanism that is budget balancing. Second, we show that, even without capacity constrained single crossing, existence of a budget balancing Pareto optimal income tax and public goods mechanism is guaranteed if the set of agent types contains no atoms. Copyright 2006 Blackwell Publishing, Inc..
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Volume (Year): 8 (2006)
Issue (Month): 3 (08)
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