Tax implementability of fair allocations

Yukihiro Nishimura ()

Review of Economic Design, 2004, vol. 9, issue 1, 41 pages

Abstract: This paper examines the tax implementability of allocations based on fairness as no-envy (or envy-freeness) and its alternatives, by a tax schedule that depends on labor supply and gross income ((y,l)-implementability). A relevant incentive constraint is perishability of abilities, where agents can exert a lower ability level than they actually possess. We first show that in any economy, every envy-free allocation is (y,l)-implementable. On the other hand, whereas we already know that no-envy may be incompatible with first-best Pareto efficiency, the alternative equity concepts which circumvent this first-best equity-efficiency trade-off meet the obstacle of tax implementability even when labor supply is observable. We also clarify necessary and sufficient domain restrictions under which the egalitarian equivalent allocations satisfy the (y,l)-implementability condition. Copyright Springer-Verlag Berlin/Heidelberg 2004

Keywords: Tax implementability; envy-free; egalitarian-equivalence (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1007/s10058-004-0118-2

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