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Distributional Weights in Cost-Benefit Analysis—Should We Forget about Them?

  • Olof Johansson-Stenman

Many argue that it is socially inefficient to use distributional weights in cost-benefit analysis, and that doing so implies large inefficiency losses,when distributional matters can be dealt with trough income taxation, instead. Our results question this view, by showing a large range of cases when distributional weights are (second-best) optimal to use. One example is when different provided goods affect tax-revenues equally per dollar spent; utility functions that are separable in the provided goods is sufficient for this. Most results hold for linear and non-linear income taxes and whether they are optimal or not. General policy implications are discussed.

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Article provided by University of Wisconsin Press in its journal Land Economics.

Volume (Year): 81 (2005)
Issue (Month): 3 ()
Pages:

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Handle: RePEc:uwp:landec:v:81:y:2005:i:3:p337-352
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