Public Finance, 2nd Edition

Optimal commodity tax (continued)

U.S. taxes, optimal, 472±474

necessity exemption, 435±436

one-consumer economy with general

technology, 458±461

ordinary demand relationships, 436±437

policy implications, 432

private information, 489±503

direct/indirect tax mix, 502±503

Sah model of maximum redistribution,

489±493

Stiglitz model of pareto-eYcient taxation,

493±502

two-class tax rule, 471±472

Optimal federalism

competition problem, 842

grants-in-aid

Wrst-best policy environment, 893±894

LeGrand guidelines, 899±903

redistribution via matching grants,

903±905

second-best policy environment, 894±898

local social welfare functions, 848

mobility models, see also Fiscal federalism,

redistribution, and Tiebout

modeling dimensions, 856±859

potential incompatibilities, 842±843

prevailing model, criticisms

decreasing-cost services, 843±845

politics and social welfare function,

845±846

redistributions in reality, 847±848

redistribution, 841±842, 848±853

Stigler's prescription, 835±836

Tiebout's beliefs, 855±856

Optimal government production,

Diamond±Mirrlees problem, 699±701

Optimal income tax

Besley and Jewitt, broad based taxation,

433±435

Mirrlees model, 503±512

Okun's leaky bucket, 503±504

overview, 493±494

PPH Wrst-best methodology, 511±512

preferences, 495±496

self-selection constraints, 496±497

Stiglitz pareto-eYcient model, 493±502

U-shaped tax schedule, 508±511

Optimal investment rules, decreasing cost

production, see also Decreasing cost

production

Optimal pricing rule, decreasing cost

production, 278±279

Overlapping generations model, see also

Dynamic tax incidence

Pareto-eYcient tax, self-selection constraints,

493±502

Pareto±optimal conditions

Wrst-best analysis, 70

government eYciency, 9

public sector analysis, 37±39

social welfare maximization, 46, 48, 55±56

Pareto±optimal redistributions

Wrst-best theory of taxation, 320±321

assistance to poor, 313±315

overall distribution of income, 311±313

overview, 309±311

Wrst-best transfers, 632±633

Partial equilibrium analysis

tax incidence, 524±525

welfare loss measurement, 403±404

Partial tax, aggregate production externalities,

223

Pauly model, housing market, 866±869

Payroll tax, social security, Pechman±Okner

studies, 589

Pechman±Okner studies, economy-wide tax

incidence

corporation income taxes, 590±592

local property taxes, 590±592

payroll tax for social security, 589

personal income taxes, 588

sales and excise taxes, 589±590

Pecuniary externalities, 147

Penalty, tax evasion, 515

Perfect competition, social welfare

maximization, 55±56

Personal income tax

e

Yciency

cost, 419±429

federal, see also Federal personal income tax

Haig±Simons criterion, 362±363

horizontal equity, 365±367

ineYciency, 368±370

Pechman±Okner studies, 588

tax capitalization, 365±367

tax loopholes, 364±370

vertical equity, 368±370

Pigovian tax

aggregate externalities

basic caveats, 200±202

interpersonal equity conditions, 195

overview, 194±195

pareto±optimal conditions, 195±198

trial and error solution, 198±200

942 INDEX