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Procedurally Fair Taxation

  • Herings P. Jean-Jacques
  • Predtetchinski Arkadi

    (METEOR)

We study the implications of procedural fairness on income taxation. We formulateprocedural fairness as a particular non-cooperative bargaining game and examine thestationary subgame perfect equilibria of the game. The equilibrium outcome is called tax equilibrium and is shown to be unique. The procedurally fair tax rate is defined as the tax rate that results in the limit of tax equilibria when the probability that negotiations break down converges to zero. The procedurally fair tax rate is shown to be unique. We also provide a characterization of the procedurally fair tax rate that involves the probability mass of below average income citizens and a particular measure of the citizens'' boldness. This characterization is then used to show that in a number of interesting cases the procedurally fair tax rate equals the probability mass of below average income citizens.

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Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 024.

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Date of creation: 2011
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Handle: RePEc:unm:umamet:2011024
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  1. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  2. N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 147-74, Fall.
  3. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  4. Herings, P. Jean-Jacques & Predtetchinski, Arkadi, 2007. "One-dimensional Bargaining with Markov Recognition Probabilities," Research Memorandum 044, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  5. Predtetchinski Arkadi, 2007. "One-dimensional bargaining with unanimity rule," Research Memorandum 011, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  6. Cardona, Daniel & Ponsati, Clara, 2007. "Bargaining one-dimensional social choices," Journal of Economic Theory, Elsevier, vol. 137(1), pages 627-651, November.
  7. Roth, Alvin E, 1989. " Risk Aversion and the Relationship between Nash's Solution and Subgame Perfect Equilibrium of Sequential Bargaining," Journal of Risk and Uncertainty, Springer, vol. 2(4), pages 353-65, December.
  8. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-61, July.
  9. Seok-ju Cho & John Duggan, 2001. "Uniqueness of Stationary Equilibria in a one-Dimensional Model of Bargaining," Wallis Working Papers WP23, University of Rochester - Wallis Institute of Political Economy.
  10. Tasos Kalandrakis, 2006. "Regularity of pure strategy equilibrium points in a class of bargaining games," Economic Theory, Springer, vol. 28(2), pages 309-329, 06.
  11. Imai, Haruo & Salonen, Hannu, 2000. "The representative Nash solution for two-sided bargaining problems," Mathematical Social Sciences, Elsevier, vol. 39(3), pages 349-365, May.
  12. Gary E Bolton & Jordi Brandts & Axel Ockenfels, 2005. "Fair Procedures: Evidence from Games Involving Lotteries," Economic Journal, Royal Economic Society, vol. 115(506), pages 1054-1076, October.
  13. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
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