Abstract
Taxation and redistribution in a democratic majority-rule society are analyzed, using the Harsanyi-Shapley non-transferable utility value. The context is that of a multi-commodity pure exchange economy. Two approaches are treated: one in which taxes are in kind and exchange takes the form of barter; and one in which taxes are in money, exchange takes the form of sale and purchase, and prices are determined by a process of supply and demand. It is shown that in the presence of a non-atomic continuum of agents, the two approaches are equivalent, but that this is not so when there are only finitely many agents. It is also shown that the value exists under both approaches, and a characterization is found in the non-atomic case.
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This work was supported by U.S. National Science Foundation Grant SOC74-11446 at the Institute for Mathematical Studies in the Social Sciences, Stanford University, and by a grant from the Israel National Council for Research and Development at the Hebrew University of Jerusalem.
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Aumann, R.J., Kurz, M. Power and Taxes in a multi-commodity economy. Israel J. Math. 27, 185–234 (1977). https://doi.org/10.1007/BF02756484
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DOI: https://doi.org/10.1007/BF02756484