Balancing inequality reduction against equality of liabilities in a taxation scheme

Abstract

This paper designs a taxation policy by maintaining a balance between post-tax income equality and equality of tax burdens. Analytically, the problem is formulated as a constrained optimisation problem achieving controlled trade-off between the equality in tax distribution and post-tax income equality. For the Gini and the Bonferroni indices, the optimisation problem becomes a linear programming problem (LPP). From a practical point of view, the LPP-based formulation provides a practical and effective computational tool based on an economic optimisation principle.