The Promise of Positive Optimal Taxation

By M. Weinzierl. 2014

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At the heart of modern optimal tax research is the assumption that the objective of taxation is Utilitarian. I present new survey evidence that most people disagree with this assumption, preferring tax policies based at least in part on a classic alternative objective: the principle of Equal Sacrifice. I generalize the standard model to accommodate this preference for a mixed objective, proposing a method by which to make disparate criteria commensurable while respecting Pareto effi ciency. Then, I show that optimal policy in this generalized model, calibrated to the survey evidence and U.S. microdata, quantitatively matches several features of existing tax policy that are incompatible in the conventional model but widely endorsed in reality, including the coexistence of substantial redistribution and limited tagging. Together, these findings demonstrate the potential of a positive theory of optimal taxation. ∗277 Morgan Hall, Harvard Business School; mweinzierl@hbs.edu; and NBER. Portions of this paper incorporate and build on material from Weinzierl (2012), which was entitled "Why do we Redistribute so Much but Tag so Little?" I am grateful to Alan Auerbach, Felix Bierbrauer, Kim Clausing, Raj Chetty, Mihir Desai, Rafael di Tella, Amy Finkelstein, Victor Fleischer, John Friedman, Alex Gelber, Mikhail Golosov, Caroline Hoxby, Bas Jacobs, Louis Kaplow, Wojciech Kopczuk, Camille Landais, Benjamin B. Lockwood, Greg Mankiw, Yoram Margalioth, Joe Mazor, Jean-Baptiste Michaud, Jeff Miron, Dina Pomeranz, Alex Raskolnikov, Meg Rithmire, Julio Rotemberg, Emmanuel Saez, Bernard Salanie, Florian Scheuer, Eytan Sheshinski, Ali Shourideh, Stefanie Stantcheva, Alain Trannoy, Aleh Tsyvinski, David Weisbach, Glen Weyl, John Weymark, Danny Yagan, and several anonymous referees for helpful discussions.

Subfields: Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/29bf99c68d1e97d69c65efde2fbfec28af7e44c5