Utilitarianism and Horizontal Equity: The Case for Random Taxation

Joseph Eugène Stiglitz

105 citations0/0 files storedNational Bureau of Economic Research

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Abstract

This paper establishes that, far from being able to derive the principle of horizontal equity from utilitarianism, the principle is actually inconsistent 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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References

1970On the measurement of inequality 1964Risk Aversion in the Small and in the Large 1927A Contribution to the Theory of Taxation 1971Increasing risk II: Its economic consequences 1980Uncertainty, Industrial Structure, and the Speed of R and D 1968Optimal taxation and public production 1976On the theory of tax reform 1971Differential Taxation, Public Goods, and Economic Efficiency

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2025Approaches to the Economics of Discrimination 1985The Optimal Size of a Tax Collection Agency 1985Horizontal Equity: Measures in Search of a Principle 2014Optimal Tax Progressivity: An Analytical Framework 1985The Return To Tax Simplification: an Econometric Analysis 1980Optimal taxation in a stochastic economy 1998Die neue Finanzwissenschaft zwischen Realitätsferne und Irrelevanz der Annahmen

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