" Random redistribution and discrimination "

Abstract :
We examine optimal random nonlinear income taxation in a Mirrlees economy with a continuum of risk-averse agents whose utility
functions are quasilinear in labor. Bunching in the deterministic optimum is necessary for socially bene\u000Ccial random redistribution. In a
parametric example featuring a Rawlsian redistribution motive, redis-
tribution through lotteries dominates the optimal deterministic policy.
Fiscal discrimination that is unattainable in the deterministic case due
to bunching becomes feasible in the stochastic case. Useful random-
ization operates through a reversal of incentives from a downward
incentive pattern in the deterministic case to an upward pattern in
the stochastic case, aligning incentives with the redistribution motive.