In-Kind Taxes, Behavior, and Comparative Advantage
This paper treats taxation in kind (IKT) as an example of price regulation, emphasizing IKT-avoidance behavior, and its interactions with the other costs of price controls. This emphasis fundamentally changes efficiency conclusions, and adds new ones. IKTs do not in fact randomly sample suppliers. Large-scale IKTs, and not small-scale ones, may have especially large average efficiency costs. Ransoms or “commutation fees” are an IKT policy option, but are only efficiency enhancing in specific situations: more heterogeneity among suppliers, and avoidance technologies that result in avoidance behaviors that are poor signals of a supplier’s opportunity cost. Avoidance behaviors are one reason why the social costs of wars and other public projects involving IKTs may have been underestimated.
I appreciate discussions with Gary Becker, John List, Kevin Murphy, Andrei Shleifer, Kevin Tsui, John Warner, seminar participants at DePaul, Clemson, Chicago, Purdue and the financial support of the University of Chicago’s Stigler Center for the Study of the Economy and the State. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.