Working Paper: NBER ID: w7649
Authors: Louis Kaplow
Abstract: Alan Auerbach and Kevin Hassett offer a new measure of horizontal equity (HE) that is designed to overcome deficiencies in prior indexes. There is, however, a fundamental problem that their effort shares with their predecessors' attempts: the underlying rationale for pursuing HE at the expense of individuals' well-being is never stated. Moreover, as discussed here, it appears that no plausible rationale can be given because the essence of HE involves giving weight to morally arbitrary factors. Indeed, pursuing HE may even conflict with the Pareto principle. On reflection, it seems that the appeal of HE is specious: HE does not possess intrinsic value, but rather is a rough proxy concept that may signal various ways in which unequal treatment of individuals can lead to a loss in social welfare. Unfortunately, HE indexes are not very useful even with regard to HE's proxy role.
Keywords: horizontal equity; welfare economics; tax policy
JEL Codes: D63; H23; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Prioritization of HE (I19) | Reduction in individual well-being (I31) |
| Adherence to HE (I19) | Compromise of individual welfare (D69) |
| Use of flawed HE measures (I10) | Negative social welfare outcomes (I38) |