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Working Paper No. 17. Optimal Utilitarian Taxation and Horizontal Equity

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Företagandets villkor, Heterogena preferenser, Luca Micheletto
Working Paper No. 17.
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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.

Related content: Optimal Utilitarian Taxation and Horizontal Equity

Jordahl, H. & Micheletto, L. (2002). Optimal Utilitarian Taxation and Horizontal Equity. Ratio Working Paper No. 17.

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Working Paper No. 17. Optimal Utilitarian Taxation and Horizontal Equity
Working paperPublication
Jordahl, H. & Micheletto, L.
Publication year

2002

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.

Related content: Optimal Utilitarian Taxation and Horizontal Equity

Optimal Utilitarian Taxation and Horizontal Equity
Article (with peer review)Publication
Jordahl, H. & Micheletto, L.
Publication year

2005

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 can be encouraged by the tax system, and that a good that normally should be discouraged by the tax system can be subsidized even if the economy is composed of only two private commodities plus leisure. Also, the marginal effective tax rate can be different from zero at the top (of the ability distribution) when the tax mix obeys the horizontal equity constraint.

Related content: Working Paper No. 17

Optimal Utilitarian Taxation and Horizontal Equity
Artikel (med peer review)Publication
Jordahl, H. & Micheletto, L.
Publication year

2005

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 can be encouraged by the tax system, and that a good that normally should be discouraged by the tax system can be subsidized even if the economy is composed of only two private commodities plus leisure. Also, the marginal effective tax rate can be different from zero at the top (of the ability distribution) when the tax mix obeys the horizontal equity constraint.

Related content: Working Paper No. 17

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