Public good provision financed by nonlinear income tax under reduction of envy

Shuichi Tsugawa and Takuya Obara

No e117, Working Papers from Tokyo Center for Economic Research

Abstract: We examine optimal taxation and public good provision by a government which takes reduction of envy into consideration as one of the constraints. We adopt the notion of extended envy freeness proposed by Diamantaras and Thomson (1990), called equitability. We derive the modified Samuelson rule at an optimum income tax, and show that, using a constant elasticity of substitution utility function, the direction of distorting the original Samuelson rule to relax envy free constraints is crucially determined by the elasticity of substitution. Furthermore, we numerically show that the level of public good increases (or decreases) in the degree of envy-freeness when the provision level is upwardly (or downwardly) distorted.

Pages: 24 pages
Date: 2017-12
New Economics Papers: this item is included in nep-mic and nep-upt
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Journal Article: Public Good Provision Financed by Nonlinear Income Tax Under Reduction of Envy (2019)
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