Working Paper: NBER ID: w15846
Authors: N. Gregory Mankiw
Abstract: This essay discusses the policy debate concerning optimal taxation and the distribution of income. It begins with a brief overview of trends in income inequality, the leading hypothesis to explain these trends, and the distribution of the tax burden. It then considers the framework that economists use to address the normative problem of designing tax systems. The conventional utilitarian approach is found to be wanting, as it leads to prescriptions that conflict with many individuals' moral intuitions. The essay then explores an alternative normative framework, dubbed the Just Deserts Theory, according to which an individual's compensation should reflect his or her social contribution.
Keywords: optimal taxation; income distribution; utilitarianism; just deserts theory
JEL Codes: D03; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| educational slowdown (I21) | increase in income inequality (D31) |
| technological advancements (O33) | increase in income inequality (D31) |
| educational attainment (I21) | increase in income of skilled workers (J31) |
| income derived from capital vs labor (E25) | effective tax rates of the wealthy (H26) |
| current tax system is progressive (H29) | higher tax percentage for richest 1% (H20) |
| height (Y60) | income (E25) |