Randomization in Optimal Income Tax Schedules

Dagobert Brito, Jonathan Hamilton, Steven M. Slutsky and Joseph Stiglitz

No 3289, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The optimal income tax problem, since it requires self-selection constraints which define nonconvex feasible sets, is one of the many problems in economics for which randomization in the solution may be desirable. For a two-class economy. we characterize the optimal random tax schedules and we present necessary and sufficient conditions for the desirability of local randomization. The standard single-crossing restriction on preferences is not required for these results. We also show that randomization can be beneficial without violating (ex post as well as ex ante) horizontal equity. Lastly, we give an example to demonstrate that the gains from randomization may be large.

Date: 1990-03
Note: PE
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Citations: View citations in EconPapers (18)

Published as Journal of Public Economics, vol. 56, (1995), pp. 189-223

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Related works:
Journal Article: Randomization in optimal income tax schedules (1995)
Working Paper: RANDOMIZATION IN OPTIMAL INCOME TAX SCHEDULES (1989)
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