Theory of Equitable Taxation

This study offers a systematic analysis of basic questions relating to equitable income taxation. Of course, a definite solution, resting on scientific arguments, cannot be expected for this important field of government activity. However, what is possible, is an exhaustive dis cussion of various aspects of equitable income taxation, thus preparing the ground for reasonable political decisions. I hope that the present book will contribute to this continuing discus sion, presenting results from modern social-choice theory and optimum taxation theory in order to gain further insights into the problem of income taxation. On a fundamental level, social-choice theory is applied in order to in vestigate the normative foundation of different tax rules. Arrow's im possibility theorem forms the starting point of the analysis; as was shown by recent contributions to social-choice theory, this impossibi lity result can be overcome if various degrees of interpersonal utility comparisons are admitted. Using this approach, one can work out the general norms of equity behind familiar tax rules. As a special point, the traditional principle of equal proportional sacrifice will be given a social-choice theoretic foundation in this book. The second level on which tax rules can be discussed, concerns their respective consequences in concrete taxation models. TWo such models are specified in this study, the first one takes gross income of the taxpayers as given, it is contrasted with the second, more complex mod el, where the individual labour-leisure decision is taken into account.

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This study offers a theoretical discussion of equity and efficiency aspects of income taxation. The analysis is carried out on two levels. The first one concerns the axiomatic derivation of certain tax principles in the framework of social choice theory. Normative characterizations of the two most familiar principles of the social-welfare-functional approach, namely the utilitarian objective and maximin, are contrasted with characterizations of the principle of equal proportional sacrifice (which may be regarded as the most widely accepted version of the ability-to-pay principle) and of the (formal-democratic) rule of majority voting. As a special case, the outcome of majority voting when individuals have non-egoistic preferences is discussed. On the second level, two specific models are introduced in order to analyze, by methods of optimal-taxation theory, the implications of the tax principles for the distribution of income (or taxes, resp.). Fixed individual incomes are assumed in the first model, while the second one incorporates a free individual labour-leisure choice. Within these models, the distributive consequences of the respective principles are investigated systematically, comparing the results for an optimum lump-sum tax with the more realistic case of linear and nonlinear income taxes.

Contenu
I Equity, efficiency and the economist's contribution.- I.1 Justice versus arbitrariness.- I.2 Efficiency.- I.3 Value judgements and economic analysis.- I.4 Organization of the book.- II The problem of taxation: Preliminary considerations.- II.1 Two basic models.- II.2 The imposition of an income tax.- II.3 Treating taxpayers uniformly.- III Taxation as a social decision problem.- III.1 The concept of social-choice theory.- III.2 The incorporation of interpersonally comparable utilities.- IV Voting over taxes.- IV.1 The social-choice theoretic characterization of majority voting.- IV.2 Majority voting with egocentric preferences.- IV.3 Majority voting with nonegocentric preferences.- V The equal proportional sacrifice.- V.1 The social-choice theoretic characterization of the principle of equal proportional sacrifice.- V.2 Taxation according to the principle of equal proportional sacrifice.- VI Maximizing the lowest welfare position.- VI.1 Maximin and leximin.- Appendix to VI.1: The maximin principle in Rawls' Theory of Justice.- VI.2 Taxation according to maximin and leximin.- VII Maximizing the sum of utilities.- VII.1 The sum of utilities rule 158 VII.1.1 The axiomatic characterization of the sum of utilities rule.- VII.2 Taxation according to the utilitarian principle.- References.- Author Index.