On the existence of an implementable optimal income tax

This paper discusses the existence of an optimal income tax and distinguishes itself from the previous articles in two respects. In previous papers, the self selection condition was not necessarily consistent with the individual budget constraint. Furthermore, implementability in previous papers was implicit in individual ability, rather than individual income, as the basis of the tax function. We offer a different concept of the self selection conditions: Anti Normal Envy that is consistent with the individual budget constraint and that we show to be equivalent to the competitive equilibrium under a tax function based on income. We then establish the existence of an implementable optimal income tax. Copyright Springer-Verlag Berlin/Heidelberg 2004