Incentive compatible income taxation, individual revenue requirements and welfare

Marcus Berliant and Miguel Gouveia

MPRA Paper from University Library of Munich, Germany

Abstract: This paper introduces the classical Public Finance concept of taxation according to ability to pay in the set-up of standard optimal income tax models. The fundamental concept used is the specification of an individual revenue requirement function, a mapping from abilities to taxes. The discussion is centered on the derivation of a tax function on income such that agents of a given ability pay exactly the amount specified by the revenue requirement function. The construction of the tax function is achieved by using the differentiable approach to the revelation principle. A basic differential equation is generated from which the tax function is found. A discussion of the necessary and sufficient conditions for the validity of this technique and an interpretation of the results in graphs are provided. A welfare ranking of the solutions is used to select the best tax function that implements the individual revenue requirements.

Keywords: Incentive compatibility; Income taxation; Revenue requirements; Welfare (search for similar items in EconPapers)
JEL-codes: H21 (search for similar items in EconPapers)
Date: 2001-10-01
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: INCENTIVE COMPATIBLE INCOME TAXATION, INDIVIDUAL REVENUE REQUIREMENTS AND WELFARE (1990)
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