Second-best Random Redistribution

Stephane Gauthier and Guy Laroque

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Random taxation may be optimal when the taxpayers differ in their attitudes towards risk, so that tax randomization enables the government to relax the incentive constraints. The paper provides a necessary and sufficient condition for local random deviations to be welfare improving in a neighborhood of a nonrandom optimum. It also derives conditions satisfied by a global random optimum. A full analytical derivation is given for a two goods two agents economy with isoelastic utilities

Keywords: Random taxation; stochastic contract; second best; tax evasion (search for similar items in EconPapers)
JEL-codes: H21 H23 H26 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-iue, nep-ore, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:11062

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