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Why do we Redistribute so Much but Tag so Little? The principle of equal sacrifice and optimal taxation

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  • Matthew C. Weinzierl

Abstract

The workhorse model of optimal taxation strongly recommends tagging, but its use in policy is limited. I argue that this puzzle is a symptom of a more fundamental problem. Conventional theory neglects the diverse normative criteria with which, as extensive evidence has shown, most people evaluate policy. In particular, if the classic principle of Equal Sacri ce augments the standard Utilitarian criterion, optimal tagging is limited. Calibrated simulations of optimal policy with normative diversity of this type simultaneously match three features of U.S. policy: substantial income redistribution; rejection of gender, race, and height tags; and acceptance of a blindness tag. Additional implications increase the appeal of this revision to conventional theory.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18045.

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Date of creation: May 2012
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Handle: RePEc:nbr:nberwo:18045

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Cited by:
  1. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
  2. Emmanuel Saez & Stefanie Stantcheva, 2013. "Generalized Social Marginal Welfare Weights for Optimal Tax Theory," NBER Working Papers 18835, National Bureau of Economic Research, Inc.

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