Randomization in Optimal Income Tax Schedules / Dagobert L. Brito, Jonathan H. Hamilton, Steven M. Slutsky, Joseph E. Stiglitz.

Format:

Book

Author/Creator:

Brito, Dagobert L.

Contributor:

National Bureau of Economic Research.

Hamilton, Jonathan H.

Slutsky, Steven M.

Stiglitz, Joseph E.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3289.

NBER working paper series no. w3289

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1990.

Summary:

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.

Notes:

Print version record

March 1990.