The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Income Taxation and Optimal Policies

  • Louis Kaplow
Reference work entry


Various economic literatures address the question whether first-best prescriptions for government policy require modification because redistributive income taxation distorts labour supply and cannot achieve the distributive ideal. Perhaps second-best rules for public goods provision, corrective taxation, public sector pricing, and other government activity should reflect concerns about distribution and labour supply distortion. Recent work demonstrates, however, that in basic cases first-best principles remain applicable. Demonstrations make use of income tax adjustments that preserve not only budget balance but also the pre-reform distribution of utility.


Commodity taxation Corrective taxes Cost–benefit analysis Distortion Distribution Environmental taxation Externalities Income taxation Lump-sum tax Marginal cost pricing Optimal taxation Pigouvian tax Public goods Public sector pricing Ramsey taxation Redistribution Regulation Samuelson, P. Second best Taxation 

JEL Classifications

D61 D62 D63 H21 H23 H24 H44 H42 Q52 Q58 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Louis Kaplow
    • 1
  1. 1.