Working Paper: NBER ID: w18599
Authors: Matthew Weinzierl
Abstract: A prominent assumption in modern optimal tax research is that the objective of taxation is Utilitarian. I present new survey evidence that most people reject this assumptionʼs implications for several prominent features of tax policy, instead 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 efficiency. Then, I show that optimal policy in this generalized model, calibrated to the survey evidence and U.S. microdata, is capable of quantitatively matching several features of existing tax policy that are incompatible in the conventional model but widely endorsed in the survey and reality, including the coexistence of substantial redistribution and limited tagging. Together, these findings demonstrate the potential of a positive theory of optimal taxation.
Keywords: optimal taxation; equal sacrifice; utilitarianism; tax policy; normative preferences
JEL Codes: D6; D63; H2; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Preference for equal sacrifice (D63) | Preference for tax policies based on equal sacrifice (H29) |
| Preference for mixed objectives (L21) | Preference for tax policies that reflect a combination of utilitarianism and equal sacrifice (H29) |
| Preference for equal sacrifice (D63) | Rejection of tagging personal characteristics in taxation (H24) |