The Promise of Positive Optimal Taxation
Harvard Business School - Business, Government and the International Economy Unit
August 1, 2013
Harvard Business School BGIE Unit Working Paper No. 14-013
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 efficiency. 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.
Number of Pages in PDF File: 42working papers series
Date posted: August 2, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.296 seconds