Abstract: Various economic literatures address the question whether first-best prescriptions for
government policy require modification because redistributive income taxation distorts labor
supply and cannot achieve the distributive ideal. Perhaps second-best rules for public goods
provision, corrective taxation, public sector pricing, and other government activity should reflect
concerns about distribution and labor supply distortion. Recent work demonstrates, however,
that in basic cases first-best principles remain applicable. Demonstrations make use of income
tax adjustments that preserve not only budget balance but also the pre-reform distribution of
utility.