Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions

44 Pages Posted: 15 Jun 2014 Last revised: 6 Apr 2015

Benjamin B Lockwood

University of Pennsylvania - The Wharton School

Matthew Weinzierl

Harvard Business School - Business, Government and the International Economy Unit

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Date Written: October 20, 2014

Abstract

Calculating the welfare implications of changes to economic policy or shocks to the economy requires economists to decide on a normative criterion. One way to make that decision is to elicit the relevant moral criteria from real-world policy choices, converting a normative decision into a positive inference exercise as in, for example, the recent surge of so-called “inverse-optimum” research. We find that capitalizing on the potential of this approach is not as straightforward as we might hope. We perform the inverse-optimum inference on U.S. tax policy from 1979 through 2010 and identify two broad explanations for its evolution. These explanations, however, either undermine the reliability of the inference exercise's conclusions or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations. We emphasize the need for better evidence on society's positive and normative judgments in order to resolve the questions these findings raise.

Suggested Citation

Lockwood, Benjamin B and Weinzierl, Matthew, Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions (October 20, 2014). Harvard Business School BGIE Unit Working Paper No. 14-119. Available at SSRN: https://ssrn.com/abstract=2448954 or http://dx.doi.org/10.2139/ssrn.2448954

Benjamin B Lockwood

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Matthew Weinzierl (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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