The Wharton School
University of Pennsylvania
1400 Steinberg-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
NBER Program Affiliations:
NBER Affiliation: Faculty Research Fellow
NBER Working Papers and Publications
|January 2018||Ramsey Strikes Back: Optimal Commodity Taxes and Redistribution in the Presence of Salience Effects|
with Hunt Allcott, Dmitry Taubinsky: w24233
An influential result in modern optimal tax theory, the Atkinson and Stiglitz (1976) theorem, holds that for a broad class of utility functions, all redistribution should be carried out through labor income taxation, rather than differential taxes on commodities or capital. An important requirement for that result is that commodity taxes are known and fully salient when consumers make income-determining choices. This paper allows for the possibility consumers may be inattentive to (or unaware of) some commodity taxes when making choices about income. We show that commodity taxes are useful for redistribution in this setting. In fact, the optimal commodity taxes essentially follow the classic “many person Ramsey rule” (Diamond 1975), scaled by the degree of inattention. As a result, to the ...
|January 2017||Regressive Sin Taxes|
with Dmitry Taubinsky: w23085
A common objection to “sin taxes”—corrective taxes on goods like cigarettes, alcohol, and sugary drinks, which are believed to be over-consumed—is that they fall disproportionately on low-income consumers. This paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework. On the one hand, redistributive concerns amplify the corrective benefits of a sin tax when sin good consumption is concentrated on the poor, even when bias and demand elasticities are constant across incomes. On the other hand, a sin tax can generate regressivity costs, raising more revenue from the poor than from the rich. Sin tax regressivity can be offset by targeted transfers or income tax reforms if differences in sin good consumption are driven by income effects...
|January 2016||Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions|
with Matthew C. Weinzierl: w21927
Calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion. One approach is to elicit the relevant moral criteria from real-world policy choices, converting a normative decision into a positive inference, as in the recent surge of "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 argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations.
Published: Journal of Monetary Economics, Volume 77, February 2016, Pages 30–47
|January 2012||De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution|
with Matthew C. Weinzierl: w17784
The prominent but unproven intuition that preference heterogeneity reduces re-distribution in a standard optimal tax model is shown to hold under the plausible condition that the distribution of preferences for consumption relative to leisure rises, in terms of first-order stochastic dominance, with income. Given mainstream functional form assumptions on utility and the distributions of ability and preferences, a simple statistic for the effect of preference heterogeneity on marginal tax rates is derived. Numerical simulations and suggestive empirical evidence demonstrate the link between this potentially measurable statistic and the quantitative implications of preference heterogeneity for policy.
Published: Benjamin B. Lockwood & Matthew Weinzierl, 2015. "De Gustibus non est Taxandum: Heterogeneity in preferences and optimal redistribution," Journal of Public Economics, vol 124, pages 74-80.