Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2005:20: Nonlinear Income Taxes and the Utility Possibility Set

Tommy Andersson ()
Additional contact information
Tommy Andersson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This article analyzes constrained Pareto efficient nonlinear income tax schedules that are monotonic chains to the left. It is demonstrated that as long as all individuals have a positive consumption at the tax schedule that maximizes the utility of the worst-off individual, the constrained utility possibility set is convex. As a consequence, all constrained Pareto efficient nonlinear income tax schedules that are monotonic chains to the left can be identified by maximizing a weighted summation of net utilities.

Keywords: Nonlinear income taxation; Utility possibility set; Convexity

JEL-codes: H21

9 pages, First version: March 4, 2005. Revised: September 28, 2006. Earlier revisions: October 5, 2005.

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