Designing, not Checking, for Policy Robustness: An Example with Optimal Taxation

Benjamin Lockwood, Afras Y. Sial and Matthew Weinzierl

No 28098, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Economists typically check the robustness of their results by comparing them across plausible ranges of parameter values and model structures. A preferable approach to robustness—for the purposes of policymaking and evaluation—is to design policy that takes these ranges into account. We modify the standard optimal income tax model to include the policymaker’s subjective uncertainty over parameter values, and we characterize robust optimal policy as that which maximizes expected social welfare. After calibrating uncertainty over the elasticity of taxable income from past empirical work and novel survey data on economists’ beliefs, we compare the implied robust optimal marginal tax rates to the alternative benchmark policy based on the best point estimates of relevant parameters. Our results suggest that robust optimal marginal tax rates are typically more progressive than in benchmark analyses, raising top marginal tax rates by between 5 and 7 percentage points, and generating modest expected welfare gains.

JEL-codes: H21 H24 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-pbe and nep-pub
Note: PE
References: Add references at CitEc
Citations:

Published as Designing, Not Checking, for Policy Robustness: An Example with Optimal Taxation , Benjamin B. Lockwood, Afras Sial, Matthew Weinzierl. in Tax Policy and the Economy, Volume 35 , Moffitt. 2021

Downloads: (external link)
http://www.nber.org/papers/w28098.pdf (application/pdf)

Related works:
Journal Article: Designing, Not Checking, for Policy Robustness: An Example with Optimal Taxation (2021)
Chapter: Designing, Not Checking, for Policy Robustness: An Example with Optimal Taxation (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:28098

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28098

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().