When Kolm Meets Mirrlees: ELIE

Since the work by Mirrlees (1971, 1974, 1986), the second-best approach to wel- farist optimal taxation has been widely adopted. This approach discards personalized lump-sum transfers and taxes because they are not implementable when the exogenous parameters on which they depend are private information. In contrast, in his recent book Macrojustice (Kolm 2004), Serge-Christophe Kolm proposes a tax scheme derived from fundamental principles of justice that corresponds in essence to providing everyone with a common lump-sum subsidy and then taxing productivity linearly. The lump-sum subsidy is common to everyone, and so does not depend on private information. Nevertheless, because productivity is taxed in addition to the lump-sum transfer, the tax scheme proposed by Kolm depends on knowing an individual’s productivity. Kolm claims that this schedule achieves justice without resulting in losses in efficiency. The practicality of this proposal is likely to be received with scepticism by the common public economist for whom it is like claiming to have solved the problem of squaring the circle.