Efficiency without Apology: Consideration of the Marginal Excess Tax Burden and Distributional Impacts in Benefit-Cost Analysis
Journal of Benefit-Cost Analysis, 2020
Posted: 29 Oct 2020
Date Written: May 2020
Some issues in the application of benefit–cost analysis (BCA) remain contentious. Although a strong conceptual case can be made for taking account of the marginal excess tax burden (METB) in conducting BCAs, it is usually excluded. Although a strong conceptual case can be made that BCA should not include distributional values, some analysts continue to advocate doing so. We discuss the cases for inclusion of the METB and the exclusion of distributional weights from what we refer to as “core” BCA, which we argue should be preserved as a protocol for assessing allocative efficiency. These issues are topical because a recent article in this journal recommends ignoring the METB on the grounds that desirable distributional effects offset its cost. We challenge the logic of this article and explain why it may encourage inefficient policies.
Keywords: benefit-cost analysis; marginal excess tax burden; distributional weights; distributional effects; multi-goal analysis; social welfare function
JEL Classification: D30, H21, H43
Suggested Citation: Suggested Citation