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Generalized Social Marginal Welfare Weights for Optimal Tax Theory

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Listed author(s):
  • Emmanuel Saez
  • Stefanie Stantcheva

Abstract

This paper proposes a new way to evaluate tax reforms, by aggregating losses and gains of different individuals using “generalized social marginal welfare weights.” A tax system is optimal if no budget neutral small reform can increase the weighted sum of (money metric) gains and losses across individuals. 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. Weights directly capture society’s concerns for fairness allowing us to cleanly separate individual utilities from social weights. Suitable weights can help reconcile discrepancies between the welfarist approach and actual tax practice, as well as unify in an operational way the most prominent alternatives to utilitarianism such as Libertarianism, Equality of Opportunity, or Poverty alleviation.

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File URL: http://www.nber.org/papers/w18835.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18835.

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Date of creation: Feb 2013
Publication status: published as Emmanuel Saez & Stefanie Stantcheva, 2016. "Generalized Social Marginal Welfare Weights for Optimal Tax Theory," American Economic Review, vol 106(01), pages 24-45.
Handle: RePEc:nbr:nberwo:18835
Note: PE
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Find related papers by JEL classification:

  • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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  1. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521715348, Diciembre.
  2. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-261, March.
  3. Chone, Philippe & Laroque, Guy, 2005. "Optimal incentives for labor force participation," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 395-425, February.
  4. 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.
  5. Benjamin B. Lockwood & Matthew Weinzierl, 2012. "De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution," Harvard Business School Working Papers 12-063, Harvard Business School, revised Sep 2014.
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  7. Weinzierl, Matthew, 2014. "The promise of positive optimal taxation: normative diversity and a role for equal sacrifice," Journal of Public Economics, Elsevier, vol. 118(C), pages 128-142.
  8. Fleurbaey, Marc, 2012. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, number 9780199653591, April.
  9. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 1039-1073.
  10. Marc Fleurbaey & François 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, vol. 9(3), pages 467-500, 06.
  11. N. Gregory Mankiw & Matthew Weinzierl, 2010. "The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 155-176, February.
  12. Christiansen, Vidar & Jansen, Eilev S., 1978. "Implicit social preferences in the Norwegian system of indirect taxation," Journal of Public Economics, Elsevier, vol. 10(2), pages 217-245, October.
  13. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
  14. Lucy F. Ackert & Jorge Martinez-Vazquez & Mark Rider, 2007. "Social Preferences And Tax Policy Design: Some Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 487-501, 07.
  15. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
  16. Fong, Christina, 2001. "Social preferences, self-interest, and the demand for redistribution," Journal of Public Economics, Elsevier, vol. 82(2), pages 225-246, November.
  17. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  18. Louis Kaplow & Steven Shavell, 2001. "Any Non-welfarist Method of Policy Assessment Violates the Pareto Principle," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 281-286, April.
  19. Cowell, Frank A. & Schokkaert, Erik, 2001. "Risk perceptions and distributional judgments," European Economic Review, Elsevier, vol. 45(4-6), pages 941-952, May.
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