TY  - JOUR
AU  - Brito,Dagobert L.
AU  - Hamilton,Jonathan H.
AU  - Slutsky,Steven M.
AU  - Stiglitz,Joseph E.
TI  - Randomization in Optimal Income Tax Schedules
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3289
PY  - 1995
Y2  - July 1995
UR  - http://www.nber.org/papers/w3289
L1  - http://www.nber.org/papers/w3289.pdf
N1  - Author contact info:
Joseph E. Stiglitz
Uris Hall, Columbia University
3022 Broadway, Room 814
New York, NY  10027
Tel: 212/854-0671
Fax: 212/662-8474
E-Mail: jes322@columbia.edu
AB  - 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.
ER  -