IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/84374.html
   My bibliography  Save this paper

Incentive compatible income taxation, individual revenue requirements and welfare

Author

Listed:
  • Berliant, Marcus
  • Gouveia, Miguel

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.

Suggested Citation

  • Berliant, Marcus & Gouveia, Miguel, 2001. "Incentive compatible income taxation, individual revenue requirements and welfare," MPRA Paper 84374, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:84374
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/84374/1/MPRA_paper_84374.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Berliant, M. & Page, F.H., 2001. "Income Taxes and Provision of Public Goods: Optima with Balanced Goverment Budgets," Papiers d'Economie Mathématique et Applications 2001.37, Université Panthéon-Sorbonne (Paris 1).
    2. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
    3. Lollivier, Stefan & Rochet, Jean-Charles, 1983. "Bunching and second-order conditions: A note on optimal tax theory," Journal of Economic Theory, Elsevier, vol. 31(2), pages 392-400, December.
    4. Border, Kim C, 1991. "Implementation of Reduced Form Auctions: A Geometric Approach," Econometrica, Econometric Society, vol. 59(4), pages 1175-1187, July.
    5. Berliant, M. & Gouveia, M., 1991. "On Political Economy of Income Taxation," RCER Working Papers 288, University of Rochester - Center for Economic Research (RCER).
    6. Berliant, Marcus & Gouveia, Miguel, 1993. "Equal sacrifice and incentive compatible income taxation," Journal of Public Economics, Elsevier, vol. 51(2), pages 219-240, June.
    7. Berliant, Marcus, 1992. "On income taxation and the core," Journal of Economic Theory, Elsevier, vol. 56(1), pages 121-141, February.
    8. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-261, March.
    9. Berliant, Marcus & Page, Frank Jr., 1996. "Incentives and income taxation: the implementation of individual revenue requirement functions," Ricerche Economiche, Elsevier, vol. 50(4), pages 389-400, December.
    10. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    11. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    12. Efraim Sadka, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 261-267.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joseph E. Mullat, 2001. "Judging Social Welfare Policy with the Solving of the Bargaining Problem," Public Economics 0112007, University Library of Munich, Germany, revised 04 Mar 2006.
    2. Kranich, Laurence, 1997. "Equalizing opportunities through public education when innate abilities are unobservable," UC3M Working papers. Economics 7216, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Waly Wane, 2002. "Income Taxation and Tax Evasion in a Finite Economy," Annals of Economics and Finance, Society for AEF, vol. 3(2), pages 407-431, November.
    4. George R.G. Clarke, 2003. "The Effect of Medicaid On Cash Assistance To the Aged and Disabled Poor," Public Finance Review, , vol. 31(1), pages 3-43, January.
    5. Marcus Berliant & Pierre C. Boyer, 2024. "Politics and income taxes: Progress and progressivity," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(4), August.
    6. Berliant, M. & Gouveia, M., 1991. "On Political Economy of Income Taxation," RCER Working Papers 288, University of Rochester - Center for Economic Research (RCER).
    7. Berliant, Marcus & Gouveia, Miguel, 2022. "On the Political Economy of Nonlinear Income Taxation," MPRA Paper 113140, University Library of Munich, Germany.
    8. Berliant, M. & Page Jr., F.H., 1997. "Optimal budget balancing income tax mechanisms and the provision of public goods," Discussion Paper 1997-029, Tilburg University, Center for Economic Research.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Berliant, Marcus & Gouveia, Miguel, 2022. "On the Political Economy of Nonlinear Income Taxation," MPRA Paper 113140, University Library of Munich, Germany.
    2. Berliant, M. & Gouveia, M., 1991. "On Political Economy of Income Taxation," RCER Working Papers 288, University of Rochester - Center for Economic Research (RCER).
    3. Brett, Craig & Weymark, John A., 2017. "Voting over selfishly optimal nonlinear income tax schedules," Games and Economic Behavior, Elsevier, vol. 101(C), pages 172-188.
    4. Boadway, Robin & Jacquet, Laurence, 2008. "Optimal marginal and average income taxation under maximin," Journal of Economic Theory, Elsevier, vol. 143(1), pages 425-441, November.
    5. Boone, Jan & Bovenberg, Lans, 2004. "The optimal taxation of unskilled labor with job search and social assistance," Journal of Public Economics, Elsevier, vol. 88(11), pages 2227-2258, September.
    6. Wane, Waly, 2001. "The optimal income tax when poverty is a public 'bad'," Journal of Public Economics, Elsevier, vol. 82(2), pages 271-299, November.
    7. Marcus Berliant & Pierre C. Boyer, 2024. "Politics and income taxes: Progress and progressivity," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(4), August.
    8. Støstad, Morten Nyborg & Cowell, Frank, 2024. "Inequality as an externality: consequences for tax design," LSE Research Online Documents on Economics 123752, London School of Economics and Political Science, LSE Library.
    9. Jacquet, Laurence & Lehmann, Etienne & Van der Linden, Bruno, 2013. "Optimal redistributive taxation with both extensive and intensive responses," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1770-1805.
    10. Morten Nyborg Støstad & Frank Cowell, 2021. "Inequality as an Externality: Consequences for Tax Design," PSE Working Papers halshs-03495989, HAL.
    11. Oztek, Abdullah Selim, 2019. "A Characterization for Marginal Income Tax Schedules," MPRA Paper 103046, University Library of Munich, Germany, revised 02 Dec 2019.
    12. Fleurbaey, Marc & Gary-Bobo, Robert J. & Maguain, Denis, 2002. "Education, distributive justice, and adverse selection," Journal of Public Economics, Elsevier, vol. 84(1), pages 113-150, April.
    13. Lehmann, Etienne & Parmentier, Alexis & Van Der Linden, Bruno, 2011. "Optimal income taxation with endogenous participation and search unemployment," Journal of Public Economics, Elsevier, vol. 95(11), pages 1523-1537.
    14. Bergstrom, Katy & Dodds, William, 2021. "Optimal taxation with multiple dimensions of heterogeneity," Journal of Public Economics, Elsevier, vol. 200(C).
    15. Georges Casamatta, 2021. "Optimal income taxation with tax avoidance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(3), pages 534-550, June.
    16. Konishi, Hideo, 1995. "A Pareto-improving commodity tax reform under a smooth nonlinear income tax," Journal of Public Economics, Elsevier, vol. 56(3), pages 413-446, March.
    17. Boone, J. & Bovenberg, A.L., 2002. "The Optimal Taxation of UnskilIed Labor with Job Search and Social Assistance," Other publications TiSEM afedd76f-3904-469d-aa36-7, Tilburg University, School of Economics and Management.
    18. Brett, Craig & Weymark, John A., 2016. "Voting over selfishly optimal nonlinear income tax schedules with a minimum-utility constraint," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 18-31.
    19. Stiglitz, Joseph E., 2018. "Pareto efficient taxation and expenditures: Pre- and re-distribution," Journal of Public Economics, Elsevier, vol. 162(C), pages 101-119.
    20. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Incentive compatibility; Income taxation; Revenue requirements; Welfare;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:84374. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.