Working Paper: NBER ID: w0694
Authors: Joseph E. Stiglitz
Abstract: This paper establishes that, far from being able to derive the principle of horizontal equity from utilitarianism, the principle is actually in- consistent with utilitarianism in a variety of circumstances. We derive conditions under which (a) it is optimal to impose random tax schedules (ex post randomization) ; and (b) it is optimal to randomize the tax schedules imposed on a set of otherwise identical individuals (ex ante randomization). The implications for optimal tax theory are discussed. More generally, it is shown that there are a number of potentially important economic situations with which the principle of horizontal equity may be inconsistent not only with utilitarianism but even with Pareto optimality.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Random taxation (H29) | Pareto improvements (D61) |
| The principle of horizontal equity (D63) | Conflict with utilitarian outcomes (D69) |