Optimal Utilitarian Taxation and Horizontal Equity

Henrik Jordahl and Luca Micheletto

No 17, Ratio Working Papers from The Ratio Institute

Abstract: We impose a horizontal equity restriction on the problem of finding the optimal utilitarian tax mix. The horizontal equity constraint requires that individuals with the same ability have to pay the same amount of taxes regardless of their preferences for leisure. Contrary to normal findings, we find that a good that is complementary to leisure need not be discouraged by the tax system, and that a good that normally should be discouraged by the tax system need not be taxed at a positive rate even if the economy is composed of only two private commodities plus leisure. Similarly, the marginal effective tax rate need not be equal to zero at the top when the tax mix obeys the horizontal equity constraint.

Keywords: horizontal equity; optimal taxation; heterogeneous preferences; utilitarianism (search for similar items in EconPapers)
JEL-codes: D63 H21 H24 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2002-12-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Public Economic Theory, 2005, pages 681-708.

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Related works:
Journal Article: Optimal Utilitarian Taxation and Horizontal Equity (2005)
Working Paper: Optimal Utilitarian Taxation and Horizontal Equity (2003)
Working Paper: Optimal Utilitarian Taxation and Horizontal Equity (2002)
Working Paper: Optimal Utilitarian Taxation and Horizontal Equity (2002)
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