Utilitarianism and Horizontal Equity: The Case for Random Taxation
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.
|Date of creation:||Jun 1981|
|Date of revision:|
|Publication status:||published as Stiglitz, Joseph E. "Utilitarianism and Horizontal Equity: The Case for Random Taxation." Journal of Public Economics, Vol. 18, No. 1 (June 1982) pp. 1-33.|
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- Joseph E. Stiglitz & Partha Dasgupta, 1970.
"Differential Taxation, Public Goods, and Economic Efficiency,"
Cowles Foundation Discussion Papers
299, Cowles Foundation for Research in Economics, Yale University.
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- Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
- Weiss, Laurence, 1976. "The Desirability of Cheating Incentives and Randomness in the Optimal Income Tax," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1343-52, December.
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