Public Good Provision Financed by Nonlinear Income Tax Under Reduction of Envy

Obara Takuya () and Shuichi Tsugawa
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Obara Takuya: Faculty of Economics, Tohoku Gakuin University, Sendai, Japan

The B.E. Journal of Economic Analysis & Policy, 2019, vol. 19, issue 4, 16

Abstract: We examine optimal taxation and public good provision by a government that considers reduction of envy as a constraint. We adopt the extended envy-freeness proposed by Diamantaras and Thomson (1990. “A Refinement and Extension of the No-Envy Concept.” Economics Letters 33: 217–22), called λ-equitability. We derive the modified Samuelson rule under an optimal nonlinear income tax and show, using a constant elasticity of substitution utility function, that the direction of distorting the original Samuelson rule to relax the λ envy-free constraint is crucially determined by the elasticity of substitution. Furthermore, we numerically show that the optimal level of provision increases (decreases) in the degree of envy-freeness when the original Samuelson rule is upwardly (downwardly) distorted.

Keywords: income taxation; public good provision; envy free; intensity of envy; elasticity of substitution (search for similar items in EconPapers)
JEL-codes: D63 H21 H41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1515/bejeap-2018-0252

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