Existence of efficient and egalitarian efficient tax allocations

Abstract

In this paper, we study an optimal tax allocation problem where the utility of each agent depends on his own income as well as on the income of the other tax payers. The objective of the government is seen as maximizing tax incidence without subjecting the tax payers to too much hardship (sacrifice). In this framework we prove the existence of efficient tax allocations and subsequently we go on to establish the existence of egalitarian-efficient (i.e. equal sacrifice and efficient) tax allocations, under mild assumptions.