When Kolm Meets Mirrlees: ELIE

Since the work by Mirrlees (1971, 1974, 1986), the second-best approach to welfarist optimal taxation has been widely adopted. This approach discards personalized lump-sum transfers and taxes because they are not implementable when the exogenous parameters on which they depend are private information. In contrast, in his recent book Macrojustice (Kolm, 2004), SergeChristophe Kolm proposes a tax scheme derived from fundamental principles of justice that corresponds in essence to providing everyone with a common lump-sum subsidy and then taxing productivity linearly. The lump-sum subsidy is common to everyone, and so does not depend on private information. Nevertheless, because productivity is taxed in addition to the lump-sum transfer, the tax scheme proposed by Kolm depends on knowing an individual’s productivity. Kolm claims that this schedule achieves justice without resulting in losses in efficiency. The practicality of this proposal is likely to be received with scepticism by the common public economist for whom it is like claiming to have solved the problem of squaring the circle. However, the tax scheme derived by Kolm (2004) has many attractive features that make it worth further study. First, it turns out to have a remarkable structure when every individual to whom it applies provides a quantity of labour in excess of what is needed for him to pay his net tax. In this case, everyone transfers the income from the same time spent working to society in return for which they each receive the average amount transferred. In other words, each citizen works a fixed fraction of his time with a view to paying his contribution to the rest of society and is then free to devote