An Interpretation of the Gini Coefficient in a Stiglitz Two-Type Optimal Tax Problem

Bo Sandemann Rasmussen (brasmussen@econ.au.dk)
Additional contact information
Bo Sandemann Rasmussen: Department of Economics and Business, Aarhus University, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: In a two-type Stiglitz (1982) model of optimal non-linear taxation it is shown that when the utility function relating to consumption is logaritmic the shadow price of the incentive constraint relating to the optimal tax problem exactly equals the Gini coefficient of the secondbest optimal income distribution of a utilitarian government. In this sense the optimal degree of income redistribution is determined by the severity of the incentive problem facing the policy-maker. Extensions of the benchmark model to allow for more general functional forms of the utility function and for more than two types of workers reveal that also in these cases the desired degree of income redistribution is positively correlated with the shadow prices of the incentive constraints.

Keywords: Optimal taxation; income distribution; incentive constraint; Gini coefficient (search for similar items in EconPapers)
JEL-codes: H21 H23 H24 (search for similar items in EconPapers)
Pages: 13
Date: 2014-05-25
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.econ.au.dk/repec/afn/wp/14/wp14_15.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2014-15

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business Economics, Aarhus University
Bibliographic data for series maintained by (bhoejklint@econ.au.dk).