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Efficiency and Redistribution: An Evaluative Review of Louis Kaplow's The Theory of Taxation and Public Economics

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  • Robin Boadway

Abstract

Louis Kaplow proposes a two-step methodology for normative policy analysis and illustrates it using various policy reforms. The first step is to identify efficiency gains when hypothetical lump-sum taxes can undo redistributive consequences. The second step evaluates the redistributive effects using a strictly welfaristic social welfare function. I critically review the foundations for Kaplow's procedure and its reliance on strict welfarism. I argue that basing efficiency gains on hypothetical lump-sum tax adjustment can lead to social welfare reducing policies if such tax adjustments are not carried out. I also indicate some conceptual problems with translating welfarism into policy evaluation when individuals have different utility function, and review one promising alternative approach.(JEL H20, H41, H50)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jel.48.4.964
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 48 (2010)
Issue (Month): 4 (December)
Pages: 964-79

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Handle: RePEc:aea:jeclit:v:48:y:2010:i:4:p:964-79

Note: DOI: 10.1257/jel.48.4.964
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  1. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  2. Konishi, Hideo, 1995. "A Pareto-improving commodity tax reform under a smooth nonlinear income tax," Journal of Public Economics, Elsevier, vol. 56(3), pages 413-446, March.
  3. Nava, Mario & Schroyen, Fred & Marchand, Maurice, 1996. "Optimal fiscal and public expenditure policy in a two-class economy," Journal of Public Economics, Elsevier, vol. 61(1), pages 119-137, July.
  4. Kaplow, Louis, 2006. "On the undesirability of commodity taxation even when income taxation is not optimal," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1235-1250, August.
  5. Stephen Coate, 1999. "An Efficiency Approach to the Evaluation of Policy Changes," NBER Working Papers 7316, National Bureau of Economic Research, Inc.
  6. CREMER, Helmuth & PESTIEAU, Pierre, . "Wealth transfer taxation: a survey of the theoretical literature," CORE Discussion Papers RP -1874, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
  8. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
  9. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  10. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309.
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Cited by:
  1. Hultkrantz, Lars & Svensson, Mikael, 2012. "A Comparison of Benefit Cost and Cost Utility Analysis in Practice: Divergent Policies in Sweden," Working Papers 2012:5, Örebro University, School of Business.
  2. Keuschnigg, Christian, 2011. "Intra- und intergenerative Gerechtigkeit in der Finanzpolitik," Economics Working Paper Series 1137, University of St. Gallen, School of Economics and Political Science.

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