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Taxing Utility

Terrence R. Chorvat

George Mason University School of Law

Journal of Socio-Economics, Forthcoming

In order to assess the efficiency of a tax, we should examine its effect on the behavior of individuals. In general, the less a tax affects behavior, the more efficient it is thought to be. The standard example of a non-distorting tax is a lump-sum tax, which does not change with the behavior of the taxpayer. However, this article demonstrates that behavioral distortions can and do arise from a change in even a lump-sum tax. The only truly non-distortionary tax would be one based on utility itself. Utility, which has been used as a norm for distributional analysis, is also the ideal base for efficiency analysis. In fact, any reasonable attempt to describe a minimally distortive basis of taxation will significantly resemble the notion of a tax on utility. Therefore, utility itself is the best basis for evaluation of the efficiency of a tax. Such a tax has many additional features which make it more useful for analytical purposes than lump sum taxes.

Number of Pages in PDF File: 33

Keywords: taxation, efficiency, utility

JEL Classification: H20

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Date posted: February 24, 2005  

Suggested Citation

Chorvat, Terrence R., Taxing Utility. Journal of Socio-Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=671964

Contact Information

Terrence R. Chorvat (Contact Author)
George Mason University School of Law ( email )
3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8208 (Phone)

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