Economic Quarterly

October 1, 2009

Richmond Fed's Economic Quarterly Reviews the Economic Theory of Redistributive Taxation

Richmond, Va.

Distortionary Taxation for Efficient Redistribution by Borys Grochulski

General equilibrium theory — a starting point for much economic analysis — suggests that market allocations are efficient and that the societally preferred level of income redistribution can in principle be achieved by non-distortionary lump-sum taxes and transfers. But when governments do not possess sufficiently fine information about people’s preferences, this finding does not hold. Richmond Fed economist Borys Grochulski studies the use of distortionary taxes — taxes that alter people’s incentives — to achieve a given level of redistribution. 

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