Budget Balancedness and Optimal Income Taxation

We make two main contributions to the theory of optimal income taxation. First, assuming conditions sufficient for existence of a Pareto optimal income tax and public goods mechanism, we show that if, in addition, agents' preferences satisfy an extended notion of single crossing called capacity constrained single crossing, then there exists a Pareto optimal income tax and public goods mechanism that is <em>budget balancing</em>. Second, we show that, even without capacity contrained single crossing, existence of a <em}budget balancing</em>, Pareto optimal income tax and public goods mechanism is guaranteed if the set of agent types contains no atoms.