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Generalized Social Marginal Welfare Weights for Optimal Tax Theory

Emmanuel Saez () and Stefanie Stantcheva

No 18835, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper proposes a new way to evaluate tax reforms, by aggregating losses and gains of different individuals using “generalized social marginal welfare weights.” A tax system is optimal if no budget neutral small reform can increase the weighted sum of (money metric) gains and losses across individuals. Optimum tax formulas take the same form as standard welfarist tax formulas by simply substituting standard marginal social welfare weights with those generalized marginal social welfare weights. Weights directly capture society’s concerns for fairness allowing us to cleanly separate individual utilities from social weights. Suitable weights can help reconcile discrepancies between the welfarist approach and actual tax practice, as well as unify in an operational way the most prominent alternatives to utilitarianism such as Libertarianism, Equality of Opportunity, or Poverty alleviation.

JEL-codes: H21 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-acc and nep-pub
Note: PE
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Published as Emmanuel Saez & Stefanie Stantcheva, 2016. "Generalized Social Marginal Welfare Weights for Optimal Tax Theory," American Economic Review, vol 106(01), pages 24-45.

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