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- Title
Politically Determined Income Inequality and the Provision of Public Goods.
- Authors
Olszewski, Wojciech; Rosenthal, Howard
- Abstract
Political processes may bring about Pareto improvements by increasing income inequality in a society that produces a public good by voluntary contributions. Proportional taxation funds a“governing agent.” The most endowed agent is the Condorcet winner for governing agent. When the tax rate can also be chosen by a vote, the ideal point of the agent with median initial endowment is the Condorcet winner under Cobb–Douglas utility. If Pareto improvements are possible, this ideal point corresponds to Pareto improvement. Pareto improvement may also be possible, even when a Leviathan set taxes, if there is deadweight loss from taxation. Pareto improvements are indeed always possible in“large” societies. On the other hand, no improvements may be possible if the initial distribution of wealth is very unequal in a“small” society, and Condorcet winners may not exist for other utility functions.
- Subjects
INCOME inequality; PUBLIC goods; PROGRESSIVE taxation; PARETO optimum; TAXATION
- Publication
Journal of Public Economic Theory, 2004, Vol 6, Issue 5, p707
- ISSN
1097-3923
- Publication type
Article
- DOI
10.1111/j.1467-9779.2004.00188.x