By Georg Tillmann
Redistribution is among the so much primary matters in welfare economics. In reference to this time period the next questions at once come up: what's an excellent redistribution ? Which (governmental) tools might be used to achieve it ? Is there a "best software" if numerous of them can be found? Or, to precise it extra ordinarily, which allocations are in any respect possible if particular tools are handy ? most of these questions are formulated in a very imprecise approach. will probably be the duty of the next paintings to make those questions distinctive and to provide solutions - so far as attainable. it's a subject after all that those solutions aren't exhaustive simply because redistribution is simply too large a box. i've got used the note "instrument" deliberately. In doing so, Iwanted to point that it isn't essential to limit oneself to source of revenue - or commodity taxes as is usual position in public finance while aiming at redistribution.
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Extra resources for Equity, Incentives, and Taxation
But if ~ < ~~ agent b envies agent a because of his big consumption amount. H ß > 10 both of them have the same disutility of labour and comparing their consumption we obtain a symmetric solution. We can see: if agents are identical in their preferences fair states exist. But even for the case that preferences are very "similar" (ß E [~~ - t:, ~~ + t:)) we may obtain nonexistence (ß > ~~). One may guess that this result depends on the big difference in ability and that existence can be assured if they are dose together - we know that fair states exist if they are identical again.
The bundles of the m-types must lie on the corresponding indifference curves. 7 the agent (a, m) envies the agent (ß, m). We are done if we can exclude the possibility that only (a, m) works. Choose now c with sß(c, O) = k and let m > k. 8) that (a,m) and (ß,m) work in this state which is not attainable and unequitable. To obtain an attainable state (a, m) and (ß, m) have to pay a tax implying that they work more. To make it 38 Equity, Incentives, and Taxation Georg Tillmann: c ulu,·)/ ,/ .......
In the Mirrleesease there are differenees: exaetly one fair alloeation exists but a continuum of fair * allocations. Apart from that there is no signifieant difference eoneeming existenee. This ehanges drastieally if we go over to the general ease. The examples by PaznerSehmeidler (1974) and Varian (1974) show that we eannot ensure existence of fair states in general. It is very often the ease that agents envy the productivity of others so that no fair state exists. To make this clearer, let us analyse a generalisation of the Pazner-Schmeidler example in more detail: there are two agents a and b with utility functions u(a,c,l) = ~~c + (1 -l) and u(b,c,l) = ßc + (1 - l).