Optimal Feasible Tax Mechanism for a Heterogeneous Economy
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The main goal of this paper is to extend the model of optimal feasible tax mechanism developed in Rhee (2008) to a heterogeneous economy in which agents have different characteristics related to their income or wealth. We provide a full characterization of optimal feasible tax mechanism for such a heterogeneous economy and find that if the level of low endowment is relatively low, only the incentive compatibility constraint of a rich minority agent will be binding. We also present some interesting comparative statics analyses as to how the optimal mechanism will respond to a change in the primitives of the economy. These analyses explain how the incentive problem of a heterogeneous economy will be resolved efficiently under feasibility constraint.
Abstract
The main goal of this paper is to extend the model of optimal feasible tax mechanism developed in Rhee (2008) to a heterogeneous economy in which agents have different characteristics related to their income or wealth. We provide a full characterization of optimal feasible tax mechanism for such a heterogeneous economy and find that if the level of low endowment is relatively low, only the incentive compatibility constraint of a rich minority agent will be binding. We also present some interesting comparative statics analyses as to how the optimal mechanism will respond to a change in the primitives of the economy. These analyses explain how the incentive problem of a heterogeneous economy will be resolved efficiently under feasibility constraint.
참고문헌 (21)
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