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Optimal Income Taxation Without Full Government Commitment
Steven Slutsky  1@  , Jonathan Hamilton  1@  
1 : University of Florida  -  Website
Gainesville, FL 32611, Florida -  United States

We consider optimal nonlinear income taxation in a Stiglitz two type framework with a single period where the government either cannot commit to announced policies or can only partially commit to carry them out. Individuals announce their types to the government which then sets taxes. Two crucial factors, especially when the government has no ability to commit, are the degree to which the government desires to carry out redistribution and how much it discounts the welfare of individuals it believes may have misrevealed their type. These traits are fixed attributes of the individual in charge of the government who is chosen in a prior stage election. If the redistributive intentions of the government are too strong, its ability to redistribute may be weak. In the initial voting stage, this may create an extremist's dilemma between purity and pragmatism where a voter who has a strong preference for redistribution may have to vote for a candidate whose preferences for redistribution are much less in order for any redistribution to occur.


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