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

See all articles by Anthony E. Boardman

Anthony E. Boardman

University of British Columbia (UBC) - Division of Strategy and Business Economics

David H. Greenberg

University of Maryland Baltimore County

Aidan Vining

Simon Fraser University

David L. Weimer

University of Wisconsin - Madison - Department of Political Science; University of Wisconsin - Madison - La Follette School of Public Affairs

Date Written: May 2020

Abstract

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

Boardman, Anthony E. and Greenberg, David H. and Vining, Aidan and Weimer, David L., Efficiency without Apology: Consideration of the Marginal Excess Tax Burden and Distributional Impacts in Benefit-Cost Analysis (May 2020). Journal of Benefit-Cost Analysis, 2020, Available at SSRN: https://ssrn.com/abstract=3689355

Anthony E. Boardman

University of British Columbia (UBC) - Division of Strategy and Business Economics ( email )

2053 Main Mall
Vancouver, British Columbia
Canada

David H. Greenberg (Contact Author)

University of Maryland Baltimore County ( email )

1000 Hilltop Circle
Baltimore, MD 21250
United States
410-884-9620 (Phone)

Aidan Vining

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

David L. Weimer

University of Wisconsin - Madison - Department of Political Science ( email )

1050 Bascom Mall
Madison, WI 53706
United States
608-265-3233 (Phone)

University of Wisconsin - Madison - La Follette School of Public Affairs ( email )

1225 Observatory Drive
Madison, WI 53705
United States

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