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

  • Robin Boadway

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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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. 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).
  2. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931, March.
  3. Robin Boadway & Michael Keen, 1991. "Public Goods, Self-Selection and Optimal Income Taxation," Working Papers 828, Queen's University, Department of Economics.
  4. Coate, Stephen, 2000. "An Efficiency Approach to the Evaluation of Policy Changes," Economic Journal, Royal Economic Society, vol. 110(463), pages 437-55, April.
  5. Louis Kaplow, 2004. "On the Undesirability of Commodity Taxation Even When Income Taxation is Not Optimal," NBER Working Papers 10407, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. 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.
  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. 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.
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