Relative Deprivation and Economic Welfare: A Statistical Investigation with Gini-Based Welfare Indices.

The time consistent redistributive linear income tax rule is derived and it is shown that the results obtained in a static model only generally hold for the last period of the government's planning horizon. The tax policy earlier in the horizon also has to be chosen to affect capital accumulation favorably and, hence, improve the tax base and welfare in the future. Labor income early in the horizon will be taxed less heavily as a result if savings is increased in the net wage. Incorporating heterogeneity and a social concern for equity will make the predictions of the model more realistic. Copyright 1991 by The editors of the Scandinavian Journal of Economics.