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Arguments for a Better World: Essays in Honor of Amartya SenVolume I: Ethics, Welfare, and Measurement$
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Kaushik Basu and Ravi Kanbur

Print publication date: 2008

Print ISBN-13: 9780199239115

Published to Oxford Scholarship Online: May 2009

DOI: 10.1093/acprof:oso/9780199239115.001.0001

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Simple Formulae for Optimal Income Taxation and the Measurement of Inequality *

Simple Formulae for Optimal Income Taxation and the Measurement of Inequality *

Chapter:
(p.535) Chapter 29 Simple Formulae for Optimal Income Taxation and the Measurement of Inequality*
Source:
Arguments for a Better World: Essays in Honor of Amartya Sen
Author(s):

Joseph E. Stiglitz (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199239115.003.0030

This chapter focuses on the measurement of inequality, in particular measuring when one income distribution is more unequal than another for any inequality averse social welfare function. While the Atkinson-Dalton measure illustrates the total cost of inequality (or the percentage of national income which society would be willing to give up in order to eliminate inequality), this chapter develops a marginal measure of inequality (how much society is willing to sacrifice to reduce inequality a given amount). This new measure of the value of marginal reductions in equality also focuses on the consequences of wage inequality with an elastic labor supply. Finally, the chapter relates the optimal tax structure to the new measure of inequality and provides a simple formula for determining the optimal tax rate.

Keywords:   inequality, optimal taxation, Atkinson-Dalton measure, averse social welfare function, optimal tax rate

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