Optimal Income Taxation, Public Goods Provision and Robust Mechanism Design

21 Pages Posted: 29 Sep 2008

See all articles by Felix J. Bierbrauer

Felix J. Bierbrauer

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Date Written: August 2008

Abstract

This paper extends the model of optimal income taxation due to Mirrlees (1971) and includes private information on public goods preferences. A mechanism design approach is used to establish the following result: If policies are required to be robustly implementable in the sense of Bergemann and Morris (2005), then the optimality conditions in the extended model with uncertainty about tax and expenditure policies, are the same as in the standard model of optimal income taxation. The paper provides a foundation for a widely used assumption in public finance, namely that individuals optimize their behaviour subject to a predetermined and commonly known tax system.

Keywords: Optimal Taxation, public goods provision, Revelation of Preferences

JEL Classification: D71, D82, H21, H41

Suggested Citation

Bierbrauer, Felix J., Optimal Income Taxation, Public Goods Provision and Robust Mechanism Design (August 2008). MPI Collective Goods Preprint, No. 2008/31. Available at SSRN: https://ssrn.com/abstract=1275286 or http://dx.doi.org/10.2139/ssrn.1275286

Felix J. Bierbrauer (Contact Author)

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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