Should the good and the selfish be taxed differently?*

Abstract

In this paper, we consider an environment where individual actions have externalities and two types of agents exist: agents with social preferences (the good) and selfish agents. Selfish agents have pay-off functions that do not take into account social welfare. The pay-off of an agent is a linear combination of social welfare and the pay-off of a selfish agent. We demonstrate that the corrective tax rates that maximize social welfare do not depend on the degree of social preferences. Hence, the good and the selfish should not be taxed differently.