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Redistribution and Small Coalitions of Friends

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  • Fred Schroyen

Abstract

When side marketing trade is perfect, linear taxation of retradeable commodities is the only scheme that survives attempts to arbitrage. In this paper, I discuss 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, I identify coalitions which might have an incentive to form and provide a characterisation for the Pareto‐efficient tax scheme. The tax formula has a very simple form and 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.

Suggested Citation

  • Fred Schroyen, 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:405-424
    DOI: 10.1111/1467-9442.00071
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    Cited by:

    1. Maurice March & Fred Schroyen, 2005. "Can a Mixed Health Care System be Desirable on Equity Grounds?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 1-23, March.
    2. 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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