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Redistribution by means of lotteries

Author

Listed:
  • Stéphane Gauthier

    (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Guy Laroque

    (UCL - University College of London [London], IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

A government designs anonymous income transfers between a continuum of citizens whose income valuation is privately known. When transfers are deterministic, the incentive constraints imply equal treatment independently of the government's taste for redistribution. We study whether random transfers may locally improve upon the egalitarian outcome. A suitable Taylor expansion offers an approximation of the utility function by a quasilinear function. The methodology developed by Myerson to deal with incentive constraints then yields a necessary and sufficient condition for the existence of a socially useful randomization. When this condition is met a large set of lotteries are locally improving. A special menu made of two lotteries only is of interest: all the agents with low risk aversion receive the same random transfer, financed by a deterministic tax paid by the high risk aversion agents.

Suggested Citation

  • Stéphane Gauthier & Guy Laroque, 2017. "Redistribution by means of lotteries," PSE-Ecole d'économie de Paris (Postprint) halshs-01509733, HAL.
    • Handle: RePEc:hal:pseptp:halshs-01509733
    DOI: 10.1016/j.jet.2017.04.002
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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