The Equity-Efficiency Trade-Off in the Presence of Distorting Taxation
Basil Dalamagas,
John Leventides,
Stefanos Tantos
Abstract:The purpose of the present study is to demonstrate how distortions that arise from taxation could affect consumers' behaviour and working time, which might prevent Pareto's maximisation process from achieving the objectives of optimal trade-off between equity and efficiency. A utility maximisation model is built up and the first-order conditions are manipulated to reach an equilibrium between the MRS and the MRT. The validity of model is then tested. In drawing a comparison of actual with optimal (in)direct ta… Show more
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