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Should We Use Distributional Weights in CBA When Income Taxes Can Deal with Equity?

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Author Info

  • Johansson-Stenman, Olof

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

Abstract

Kaplow (1996) and others argue forcefully in favor of using the standard cost-benefit test alone, without any distributional concern, given “standard simplifying assumptions.” This paper, on the contrary, demonstrates that distributional weights, equal to the social marginal utility of income, should be applied in cost-benefit analysis, given weak separability in public goods instead of in leisure. This result holds for linear as well as non-linear income taxes, and whether they are optimal or not. A correspondingly modified Samuelson rule is derived and more general policy recommendations discussed.

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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 35.

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Length: 22 pages
Date of creation: 28 Feb 2001
Date of revision:
Handle: RePEc:hhs:gunwpe:0035

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Related research

Keywords: public goods; distributional weights; equity and efficiency; separability; cost-benefit; optimal taxation;

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References

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  1. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April.
  2. Olof Johansson-Stenman, 2000. "On the Value of Life in Rich and Poor Countries and Distributional Weights Beyond Utilitarianism," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(3), pages 299-310, November.
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Cited by:
  1. Lundholm, Michael, 2005. "Cost-Benefit Analysis and the Marginal Cost of Public Funds," Research Papers in Economics 2005:3, Stockholm University, Department of Economics.

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