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Optimal Random Taxation and Redistribution

Author

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  • Stéphane Gauthier

    (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 des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UP1 - Université Paris 1 Panthéon-Sorbonne, IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies)

  • Guy Laroque

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

Abstract

We assess the usefulness of stochastic redistribution among a continuum of riskaverse agents with quasilinear utilities in labor. Agents differ according to their consumption tastes, which remain private information. We identify circumstances where stochastic redistribution is socially dominated by the deterministic policy where aftertax income lotteries are replaced with their certainty equivalent. We also provide a parametric example where feasible and incentive compatible lotteries locally dominate the optimal deterministic menu. In this example the downward pattern of incentives prevailing in the deterministic case is reversed to an upward pattern in the stochastic case.

Suggested Citation

  • Stéphane Gauthier & Guy Laroque, 2022. "Optimal Random Taxation and Redistribution," Working Papers hal-03915336, HAL.
    • Handle: RePEc:hal:wpaper:hal-03915336
    Note: View the original document on HAL open archive server: https://hal.science/hal-03915336
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    References listed on IDEAS

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    1. Gauthier, Stéphane & Laroque, Guy, 2014. "On the value of randomization," Journal of Economic Theory, Elsevier, vol. 151(C), pages 493-507.
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    More about this item

    Keywords

    Redistribution; Asymmetric information; Random taxes; Certainty equivalent;
    All these keywords.

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