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Optimal Utilitarian Taxation and Horizontal Equity

  • Jordahl, Henrik

    (Department of Economics)

  • Micheletto, Luca

    ()

    (L. Bocconi University)

We impose a horizontal equity restriction on the problem of finding the optimal utilitarian tax mix. The horizontal equity constraint requires that individuals with the same ability have to pay the same amount of taxes regardless of their preferences for leisure. Contrary to normal findings, we find that a good that is complementary to leisure need not be discouraged by the tax system, and that a good that normally should be discouraged by the tax system need not be taxed at a positive rate even if the economy is composed of only two private commodities plus leisure. Similarly, the marginal effective tax rate need not be equal to zero at the top when the tax mix obeys the horizontal equity constraint.

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Paper provided by The Ratio Institute in its series Ratio Working Papers with number 17.

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Length: 48 pages
Date of creation: 30 Dec 2002
Date of revision:
Publication status: Published in Journal of Public Economic Theory, 2005, pages 681-708.
Handle: RePEc:hhs:ratioi:0017
Contact details of provider: Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Phone: 08-441 59 00
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