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Optimal Utilitarian Taxation and Horizontal Equity

  • Jordahl, Henrik

    (Department of Economics)

  • Micheletto, Luca

    ()

    (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 Uppsala University, Department of Economics in its series Working Paper Series with number 2002:19.

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Length: 45 pages
Date of creation: 26 Nov 2002
Date of revision:
Publication status: Published in Journal of Public Economic Theory, 2005, pages 681-708.
Handle: RePEc:hhs:uunewp:2002_019
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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