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Utilitarianism and Horizontal Equity: The Case for Random Taxation

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  • Joseph E. Stiglitz

Abstract

This paper establishes that, far from being able to derive the principle of horizontal equity from utilitarianism, the principle is actually in- consistent with utilitarianism in a variety of circumstances. We derive conditions under which (a) it is optimal to impose random tax schedules (ex post randomization) ; and (b) it is optimal to randomize the tax schedules imposed on a set of otherwise identical individuals (ex ante randomization). The implications for optimal tax theory are discussed. More generally, it is shown that there are a number of potentially important economic situations with which the principle of horizontal equity may be inconsistent not only with utilitarianism but even with Pareto optimality.

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  • Joseph E. Stiglitz, 1981. "Utilitarianism and Horizontal Equity: The Case for Random Taxation," NBER Working Papers 0694, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0694
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