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Redistribution and Small Coalitions of Friends

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  • Schroyen, Fred

Abstract

When side marketing trade is perfect, linear taxation of retradeable commodities is the only scheme that survives attempts to arbitrage. In this paper, the author discusses tax schemes when side trading is imperfect in the sense that commodities can only be re-exchanged within coalitions no larger than two people. In the framework of a two-class economy, he identifies coalitions which might have an incentive to form and provide a characterization for the Pareto-efficient tax scheme. The tax formula has a very simple forma nd strongly resembles the formula for the no-side-trade case. In a numerical exercise, the constraints imposed on policy by an imperfect side trading process are found to be almost as tough as those imposed by perfect side trading. Copyright 1997 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Schroyen, Fred, 1997. " Redistribution and Small Coalitions of Friends," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(3), pages 405-424, September.
  • Handle: RePEc:bla:scandj:v:99:y:1997:i:3:p:405-24
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    Cited by:

    1. Schroyen, Fred, 2003. "Redistributive taxation and the household: the case of individual filings," Journal of Public Economics, Elsevier, vol. 87(11), pages 2527-2547, October.

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