Advanced Search
MyIDEAS: Login to save this paper or follow this series

Generalized Social Marginal Welfare Weights for Optimal Tax Theory

Contents:

Author Info

  • Emmanuel Saez
  • Stefanie Stantcheva

Abstract

This paper proposes a theory of optimal taxation using the tax reform approach and generalized social marginal welfare weights to capture social preferences for redistribution. A tax system is optimal if no budget neutral small reform can increase a weighted sum of (money metric) gains and losses across individuals. However, the weights used for aggregating gains and losses are not derived from a standard social welfare function based on individual utilities but instead directly specified to reflect society's views for justice. Optimum tax formulas take the same form as standard welfarist tax formulas by simply substituting standard marginal social welfare weights with those generalized marginal social welfare weights. We show how the use of suitable generalized social welfare weights can help resolve most of the puzzles of the traditional welfarist approach while retaining constrained Pareto efficiency. In contrast to the welfarist approach, generalized welfare weights can be specified to (1) provide a rich theory of optimal taxation even absent any behavioral responses, (2) treat differently ``deserved income'' vs. ``undeserved income,'' (3) treat differently ``deserving transfer beneficiaries'' vs. ``free loaders'', (4) rule out the use of tags unless they can make a Pareto improvement. We show how the most prominent alternatives to utilitarianism such as Libertarianism, Rawlsianism, Equality of Opportunity, Fair Income Taxation, Poverty alleviation, can be re-cast within our theory. Hence, generalized welfare weights can be derived from social justice principles, leading to a normative theory of taxation. Generalized welfare weights can also be derived from estimating actual social preferences of the public, leading to a positive theory of taxation. We use a simple online survey to illustrate this latter approach.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w18835.pdf
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18835.

as in new window
Length:
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:nbr:nberwo:18835

Note: PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Philippe Chone & Guy Laroque, 2001. "Optimal Incentives for Labor Force Participation," Working Papers, Centre de Recherche en Economie et Statistique 2001-26, Centre de Recherche en Economie et Statistique.
  2. Lucy F. Ackert & Jorge Martinez-Vazquez & Mark Rider, 2007. "Social Preferences And Tax Policy Design: Some Experimental Evidence," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 45(3), pages 487-501, 07.
  3. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(3), pages 1039-1073, August.
  4. Cowell, Frank A. & Schokkaert, Erik, 2001. "Risk perceptions and distributional judgments," European Economic Review, Elsevier, Elsevier, vol. 45(4-6), pages 941-952, May.
  5. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, American Economic Association, vol. 82(1), pages 249-61, March.
  6. Besley, T. & Coate, S., 1990. "Understanding Welfare Stigma: Taxpayer Resentment And Statistical Discrimination," Papers, Princeton, Woodrow Wilson School - Discussion Paper 42, Princeton, Woodrow Wilson School - Discussion Paper.
  7. N. Gregory Mankiw & Matthew Weinzierl, 2009. "The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution," NBER Working Papers 14976, National Bureau of Economic Research, Inc.
  8. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  9. Matthew C. Weinzierl, 2012. "The Promise of Positive Optimal Taxation," NBER Working Papers 18599, National Bureau of Economic Research, Inc.
  10. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(1), pages 205-29, January.
  11. Matthew C. Weinzierl, 2012. "Why do we Redistribute so Much but Tag so Little? The principle of equal sacrifice and optimal taxation," NBER Working Papers 18045, National Bureau of Economic Research, Inc.
  12. Marc Fleurbaey & Fran�Ois Maniquet, 2007. "Help the Low Skilled or Let the Hardworking Thrive? A Study of Fairness in Optimal Income Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 467-500, 06.
  13. Christiansen, Vidar & Jansen, Eilev S., 1978. "Implicit social preferences in the Norwegian system of indirect taxation," Journal of Public Economics, Elsevier, Elsevier, vol. 10(2), pages 217-245, October.
  14. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, Elsevier, vol. 2(3), pages 244-263, September.
  15. Fong, Christina, 2001. "Social preferences, self-interest, and the demand for redistribution," Journal of Public Economics, Elsevier, Elsevier, vol. 82(2), pages 225-246, November.
  16. Louis Kaplow & Steven Shavell, 2001. "Any Non-welfarist Method of Policy Assessment Violates the Pareto Principle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(2), pages 281-286, April.
  17. Benjamin B. Lockwood & Matthew C. Weinzierl, 2012. "De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution," NBER Working Papers 17784, National Bureau of Economic Research, Inc.
  18. Fleurbaey, Marc, 2008. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199215911, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Raymond Fisman & Pamela Jakiela & Shachar Kariv, 2014. "How Did Distributional Preferences Change During the Great Recession?," NBER Working Papers 20146, National Bureau of Economic Research, Inc.
  2. Matthew C. Weinzierl, 2014. "Revisiting the Classical View of Benefit-Based Taxation," Harvard Business School Working Papers, Harvard Business School 14-101, Harvard Business School.
  3. Jon Bakija, 2013. "Tax Policy and Philanthropy: A Primer on the Evidence for the U.S. and its Implications," Department of Economics Working Papers, Department of Economics, Williams College 2013-01, Department of Economics, Williams College.
  4. Benjamin B. Lockwood & Matthew Weinzierl, 2014. "Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions," Harvard Business School Working Papers, Harvard Business School 14-119, Harvard Business School.
  5. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
  6. Robin Boadway & Nicolas-Guillaume Martineau, 2013. "Normative Analysis with Societal Constraints," CESifo Working Paper Series 4305, CESifo Group Munich.
  7. Felix Bierbrauer & Pierre C. Boyer, 2014. "Efficiency, Welfare, and Political Competition," CESifo Working Paper Series 4814, CESifo Group Munich.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18835. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.