AN OPTIMAL TAX TREATMENT OF LEVIATHAN*

John Wilson

Economics and Politics, 1989, vol. 1, issue 2, 97-117

Abstract: This paper constructs a model in which taxation and public expenditure decisions are made by two decision makers: a “benevolent planner,” who treats all consumers equally in the measurement of welfare; and a “Leviathan planner,” who places more weight on the utilities of “favored consumers.” The benevolent planner can restrict the Leviathan planner's power to tax, but cannot control the allocation of expenditures between desirable public goods and income transfers to favored consumers. Several types of tax restrictions are shown to be welfare‐improving from the benevolent planner's viewpoint. These restrictions include a reduction in the size of the tax base, although administrative costs already prevent the Leviathan planner from taxing all commodities.

Date: 1989
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