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Budget Balancedness and Optimal Income Taxation

Author

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  • Marcus Berliant

    (Washington University in St. Louis)

  • Frank H. Page Jr.

    (University of Alabama)

Abstract

We make two main contributions to the theory of optimal income taxation. First, assuming conditions sufficient for existence of a Pareto optimal income tax and public goods mechanism, we show that if agents’ preferences satisfy an extended notion of single crossing called capacity constrained single crossing, then there exists a Pareto optimal income tax and public goods mechanism that is budget balancing. Second, we show that, even without capacity constrained single crossing, existence of a budget balancing, Pareto optimal income tax and public goods mechanism is guaranteed if the set of agent types contains no atoms.

Suggested Citation

  • Marcus Berliant & Frank H. Page Jr., 2004. "Budget Balancedness and Optimal Income Taxation," Public Economics 0407016, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0407016
    Note: Type of Document - pdf; pages: 44
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    References listed on IDEAS

    as
    1. Conley, John P. & Wooders, Myrna H., 2001. "Tiebout Economies with Differential Genetic Types and Endogenously Chosen Crowding Characteristics," Journal of Economic Theory, Elsevier, vol. 98(2), pages 261-294, June.
    2. Konishi, Hideo, 1995. "A Pareto-improving commodity tax reform under a smooth nonlinear income tax," Journal of Public Economics, Elsevier, vol. 56(3), pages 413-446, March.
    3. Artstein, Zvi, 1979. "A note on fatou's lemma in several dimensions," Journal of Mathematical Economics, Elsevier, vol. 6(3), pages 277-282, December.
    4. Berliant, Marcus & Page, Frank Jr., 1996. "Incentives and income taxation: the implementation of individual revenue requirement functions," Ricerche Economiche, Elsevier, vol. 50(4), pages 389-400, December.
    5. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, April.
    6. Berliant, Marcus & Page, Frank H, Jr, 2001. "Income Taxes and the Provision of Public Goods: Existence of an Optimum," Econometrica, Econometric Society, vol. 69(3), pages 771-784, May.
    7. Page, Frank H, Jr, 1992. "Mechanism Design for General Screening Problems with Moral Hazard," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 265-281, April.
    8. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    9. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    10. Peter J. Hammond, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 263-282.
    11. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
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    Cited by:

    1. Berliant, Marcus & Gouveia, Miguel, 2018. "On the Political Economy of Income Taxation," MPRA Paper 84437, University Library of Munich, Germany.

    More about this item

    Keywords

    Optimal Income Taxation; Public Goods; Budget Balancing; Single Crossing; Nonatomic Economy; Atomless Economy;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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