Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Social Preferences and Optimal Income Taxation

Vol.17, No.3, September , 93–118


English Version |  Korean Version
  •   (Pusan National University)

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Abstract  

To examine the properties of the optimal income taxation scheme under adverse selection, we analyzed taxpaying agents who are averse to inequity. The efficient agent who is averse to inequity was found to produce more outputs than first-best level, while the inefficient agent produces less than the second-best level of standard adverse selection output when the agents compared incomes among themselves. Thus, the tradeoff between efficiency and equity becomes more serious or positive than the tradeoff without inequity aversion if agents compare income. When agents compare rents, the optimal productions become identical to the standard adverse selection which has the same degree of tradeoff between efficiency and equity.


Keywords
   Inequity Aversion, Adverse Selection, Redistribution, Tradeoff

JEL classification codes
   D23, D82, H21, J4
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