Optimal Taxation and In-Kind Redistribution

Within a Mirrlees framework of optimal taxation, we add a new heterogeneity between individuals who differ not only in their marginal productivity, but also in their initial endowment of a good which is interpreted as aggregate consumption. We consider other goods, such as public hospital care or education, which individuals cannot supplement on the market. We show that one can justify the public supply of such a good on the economic criterion of efficiency, in spite of an assumption of separability between work and consumption in the utility function of the individuals