Envy, Inequity Aversion, and Optimal Income Taxation
The paper analyzes the optimal income taxation policy when inequity aversion exists among taxpayers. The influence of inequity aversion on the optimal income tax scheme depends on whether taxpayers are concerned about inequality in wages or in rents (i.e., wages minus effort costs). If agents compare wages, then a more productive agent who is averse to inequity produces more output than the first-best level of output, while a less productive agent produces less than the second-best level of the output in a standard adverse-selection model. Therefore, the trade-off between efficiency and equity becomes more serious than the trade-off in a reference case without inequity aversion. Conversely, when agents´ disutility from inequity arises from inequality in rents, the trade-off between efficiency and equity may become either more serious or milder than in the reference case.
Volume (Year): 65 (2009)
Issue (Month): 1 (March)
|Contact details of provider:|| Web page: https://www.mohr.de/fa|
|Order Information:|| Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany|
When requesting a correction, please mention this item's handle: RePEc:mhr:finarc:urn:sici:0015-2218(200903)65:1_1:eiaaoi_2.0.tx_2-i. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Wolpert)
If references are entirely missing, you can add them using this form.