Utilitarianism and Horizontal Equity: The Case for Random Taxation
NBER Working Paper No. 694 (Also Reprint No. r0333)
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.
Published: Stiglitz, Joseph E. "Utilitarianism and Horizontal Equity: The Case for Random Taxation." Journal of Public Economics, Vol. 18, No. 1 (June 1982) pp. 1-33.