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American Economic Journal: Microeconomics: Vol. 6 No. 1 (February 2014)

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Optimal Tax and Expenditure Policy with Aggregate Uncertainty

Article Citation

Bierbrauer, Felix J. 2014. "Optimal Tax and Expenditure Policy with Aggregate Uncertainty." American Economic Journal: Microeconomics, 6(1): 205-57.

DOI: 10.1257/mic.6.1.205

Abstract

We study optimal income taxation and public-goods provision under the assumption that the cross-section distributions of productive abilities or public-goods preferences are not known a priori. A conventional Mirrleesian treatment is shown to provoke manipulations of the policy mechanism by individuals with similar interests. The analysis therefore incorporates a requirement of coalition-proofness. The main result is that increased public-goods provision is associated with a more distortionary and a more redistributive tax system. With a conventional Mirrleesian treatment, the level of public-goods provision is not related to how distortionary or redistributive the tax system is.

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Authors

Bierbrauer, Felix J. (U Cologne)

JEL Classifications

D82: Asymmetric and Private Information; Mechanism Design
H21: Taxation and Subsidies: Efficiency; Optimal Taxation
H23: Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H41: Public Goods

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