Monday, August 19, 2013

Manski on taxes

Manski criticizes the emphasis on deadweight loss in discussions of taxation here (a summary of new research in The Economic Journal). Tyler Cowen has criticisms here. I mostly agree with Tyler. I do think people make too much of findings that X tax is inefficient relative to lump sum taxes (to say nothing of the frequent use of lump sum taxes in analyses). Since no one is ever going to advocate a lump sum tax, as an entrée to a normative discussion of taxes that sort of observation seems useless. But by the same token, benchmarks are just that - they don't necessarily have to be a goal anyone expects (the same can be said for "perfect competition" - too much ink is spilled over whining about that as a benchmark).

Manski proposes integrating discussions of the efficiency of government spending into these discussions of the efficiency of taxation. I also agree with Tyler here - it's perfectly valid to separate the two and everyone has in the back of their heads that we tax (often inefficiently) because of the added efficiency of wise government spending.

I don't know the public economics literature all that well, but if I were to raise a criticism it would be around the diminishing marginal utility of money for certain populations. Welfare is our ultimate interest here and presumably that makes up for a lot of the inefficiencies - particularly with respect to the income tax. Manski proposes specifying social welfare functions as an alternative, and in many ways my complaint here is similar to that. Of course that's difficult for many reasons. It's easier for economists to agree on supply and demand curves in different markets to calculate deadweight loss than it is for them to agree on a social welfare function. That may be the case, but it doesn't validate the decision to ignore that issue.

As you all know, I don't do tax or public economic stuff - I mention Manski because in a couple weeks I'll be attending a four part lecture that he's giving on his new book at Georgetown University. The book is called "Public Policy in an Uncertain World".

1 comment:

  1. This book by Professor Charles Manski actually resembles something Dr. Michael Emmett Brady once told me about somewhat. He told me before that he was considering doing a research project with a few other scholars on the impact of uncertainty on tax revenues and social welfare programmes in the United States, using Benoit Mandelbrot's rescaled range analysis technique. The reason the project never got off the ground was because they never received the funding for it (it was a U.S. Federal Government grant they were applying for).


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