Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions
Harvard University, Department of Economics - Littauer Center
Harvard Business School - Business, Government and the International Economy Unit
June 13, 2014
Harvard Business School BGIE Unit Working Paper No. 14-119
We use official data and standard optimal tax conditions to infer the positive and normative judgments implicit in U.S. tax policy since 1979. We find that explanations within this framework for the time path of U.S. policy require central parameters of the model, namely the elasticity of taxable income or the marginal social welfare weights on top earners, to take unconventional values. We use inferred social preferences to provide novel estimates of the welfare costs of unequal growth and recessions and find that they are sensitive to the assumed distortionary costs of taxation and the year from which preferences are derived. We explore several possible explanations for our findings with available data.
Number of Pages in PDF File: 35working papers series
Date posted: June 15, 2014
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