Optimal non-linear income taxation for reduction of envy

This paper examines the optimal non-linear income taxation problem based on lambda-equitability. An allocation is lambdaequitable if no agent envies a proportion lambdaof the bundle of any other agent. We examine the properties of Pareto undominated allocations for various lambda-equitability requirements. When there is one output, the marginal income tax rate can increase only if leisure is a luxury. In a multi-commodity model with commodity taxes, the goods preferred by the low skilled agent and/or those with high Hicksian elasticities are taxed more heavily. When preferences exhibit quasi-linearity, we can show that the introduction of the lambda-equitability constraint increases the marginal income tax rates of the entire population.