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Incentive Compatible Income Taxation, Individual Revenue Requirements And Welfare

Author

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  • BERLIANT, M.
  • GOUVEIA, M.

Abstract

This paper introduces the classical Public Finance concept of taxation according to ability to pay in the set-up of standard optimal income tax models. The fundamental concept used is the specification of an individual revenue requirement function, a mapping from abilities to taxes. The discussion is centered on the derivation of a tax function on income such that agents of a given ability pay exactly the amount specified by the revenue requirement function. The construction of the tax function is achieved by using the differentiable approach to the revelation principle. A basic differential equation is generated from which the tax function is found. A discussion of the necessary and sufficient conditions for the validity of this technique and an interpretation of the results in graphs are provided. A welfare ranking of the solutions is used to select the best tax function that implements the individual revenue requirements.
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Suggested Citation

  • Berliant, M. & Gouveia, M., 1990. "Incentive Compatible Income Taxation, Individual Revenue Requirements And Welfare," RCER Working Papers 234, University of Rochester - Center for Economic Research (RCER).
    • Handle: RePEc:roc:rocher:234
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    Cited by:

    1. Joseph E. Mullat, 2001. "Judging Social Welfare Policy with the Solving of the Bargaining Problem," Public Economics 0112007, University Library of Munich, Germany, revised 04 Mar 2006.
    2. Waly Wane, 2002. "Income Taxation and Tax Evasion in a Finite Economy," Annals of Economics and Finance, Society for AEF, vol. 3(2), pages 407-431, November.
    3. George R.G. Clarke, 2003. "The Effect of Medicaid On Cash Assistance To the Aged and Disabled Poor," Public Finance Review, , vol. 31(1), pages 3-43, January.
    4. Marcus Berliant & Pierre C. Boyer, 2024. "Politics and income taxes: Progress and progressivity," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(4), August.
    5. Berliant, M. & Gouveia, M., 1991. "On Political Economy of Income Taxation," RCER Working Papers 288, University of Rochester - Center for Economic Research (RCER).
    6. Berliant, M. & Page Jr., F.H., 1997. "Optimal budget balancing income tax mechanisms and the provision of public goods," Other publications TiSEM 5ac85c5c-087f-4f74-919d-9, Tilburg University, School of Economics and Management.
    7. Kranich, Laurence, 1997. "Equalizing opportunities through public education when innate abilities are unobservable," UC3M Working papers. Economics 7216, Universidad Carlos III de Madrid. Departamento de Economía.
    8. Berliant, Marcus & Gouveia, Miguel, 2022. "On the Political Economy of Nonlinear Income Taxation," MPRA Paper 113140, University Library of Munich, Germany.

    More about this item

    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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