5.AN APPROACH TO THE STUDY OF INCOME, UTILITY, AND HORIZONTAL EQUITY外文翻译.pdfVIP

AN APPROACH TO THE STUDY OF INCOME, UTILITY, AND HORIZONTAL EQUITY* HARVEY S . ROSEN I. Introduction, 307.—II. Utility functions and differences in tastes, 308.—III. Measuring horizontal equity, 313.—IV. Qualifications, 318. I. INTRODUCTION Recent contributions to the theory of optimal income taxation have focused upon the trade-off between efficiency and vertical eq- uity.i The view in this literature is that the best tax system is one that maximizes a utilitarian social welfare function. The shape of the social welfare function reflects the planners value judgments about the proper distribution of income, and the effects of taxes on work in- centives are introduced via assumptions on the form of individual utility functions. It has been pointed out (Feldstein, 1976; Musgrave, 1976) that such a framework neglects an important concern of students of the tax system, namely horizontal equity. As traditionally defined, hor- izontal equity is the notion that.. . people in equal positions should be treated equally (Musgrave, 1959, p . 160). (Customarily, equal positions are defined in terms of some observable index of ability to pay such as income, expenditure, or wealth.) The injunction to treat equals the same appears neither as a constraint in the maximization problem, nor as an argument in the objective function. Therefore, such optimal tax designs will in generaP fail to provide horizontal equity. To the extent one views horizontal equity as an important ethical precept, these optimal tax systems are unsatisfactory. In order to put a discussion of horizontal equity on the same plane as the optimal taxation literature, it is useful to define it in terms of utility rather than ability to pay. Such a formulation has been sug- gested by Feldstein : (i) If two individuals