Public Goods and the Distribution of Income

This article addresses conceptual issues concerning the distributive incidence of public goods. Solutions depend on the specific purposes for asking the question of distributive incidence notably, assessing the extent to which various public goods should be provided, determining how the provision of public goods affects the desirability of income redistribution, and providing a meaningful description of the distribution of well-being. In the course of the analysis, a simple and intuitive version of the benefit principle of taxation (qualitatively different from those commonly advanced in pertinent literatures) is presented, and some of the problems confronting empirical attempts to measure the distributive incidence of public goods are resolved.

Discounting Dollars, Discounting Lives: Intergenerational Distributive Justice and Efficiency

The view that intergenerational distributive justice and efficiency should be treated separately is familiar, yet controversial. This article elaborates the often-implicit justifications for separate treatment and provides a more express statement of how and when such treatment is appropriate. Substantial attention is devoted to an approach that holds constant the intra- and intergenerational distribution of well-being, which proves to be a valuable analytical device even for intergenerational policies that are not distribution neutral. Also explored are possible interrelationships between intergenerational distributive justice and efficiency, the choice of interest rate for discounting dollars, and how the present approach relates to those that would employ direct social weights to dollars at different points in time.

The Optimal Probability and Magnitude of Fines for Acts that Definitely are Undesirable

Even when society would wish to deter all acts of some type, such as tax evasion and many common crimes, the benefits from deterrence often will be insufficient to justify the expenditures on enforcement that would be required to deter everyone. If some individuals are not deterred, however, they will bear risk when fines are employed as a sanction. As a result, it may be optimal to reduce total risk-bearing costs by reducing the number of individuals who bear any risk. This can be accomplished by increasing enforcement above the level that would be justified considering only the benefits of deterrence and the direct costs of enforcement. Another possibility is that it may be optimal reduce the risk borne by those who act, by employing fines below the maximum feasible level. This latter result constitutes an instance in which the well-known implication of Becker's analysis that it is optimal to employ extreme sanctions for all offenses is invalid.

Horizontal Equity: New Measures, Unclear Principles

Alan Auerbach and Kevin Hassett offer a new measure of horizontal equity (HE) that is designed to overcome deficiencies in prior indexes. There is, however, a fundamental problem that their effort shares with their predecessors' attempts: the underlying rationale for pursuing HE at the expense of individuals' well-being is never stated. Moreover, as discussed here, it appears that no plausible rationale can be given because the essence of HE involves giving weight to morally arbitrary factors. Indeed, pursuing HE may even conflict with the Pareto principle. On reflection, it seems that the appeal of HE is specious: HE does not possess intrinsic value, but rather is a rough proxy concept that may signal various ways in which unequal treatment of individuals can lead to a loss in social welfare. Unfortunately, HE indexes are not very useful even with regard to HE's proxy role.

Optimal Income Transfers

A substantial literature addresses the design of transfer programs and policies, including the negative income tax, other means-tested transfers, the earned income tax credit, categorical assistance, and work inducements. This work is largely independent of that on the optimal nonlinear income tax, yet formulations of such a tax necessarily address how low-income individuals should be treated. This paper draws on the optimal income taxation literature to illuminate the analysis of transfer programs, including the level and shape of marginal tax rates (including phase-outs), the structure of categorical assistance, and the role of work inducements in an optimal income transfer scheme.

Transition Policy: A Conceptual Framework

Legal change, whether through legislation, regulation, or court decision, is a common phenomenon, and virtually all reform creates both gains and losses for those who under the prior regime took actions that would have lasting effects. This article offers a conceptual framework for assessing the desirability of different transition policies, ranging from compensation of losses and taxation of gains, grandfathering of pre-enactment investments, and delayed or partial implementation to complete and immediate implementation or even retroactive application. Emphasis is placed on how transitions and various mitigation strategies affect the incentives of and risk borne by private actors as well as on the behavior of government and how it may be affected by transition policy.

The Value of a Statistical Life and the Coefficient of Relative Risk Aversion

Individuals' risk preferences are estimated and employed in a variety of settings, notably including choices in financial, labor, and product markets. Recent work, especially in financial economics, provides estimates of individuals' coefficients of relative risk aversion (CRRA's) in excess of one, and often significantly higher. However, it can be shown that high CRRA's imply equally high values for the income elasticity of the value of a statistical life. Yet estimates of this elasticity, derived from labor and product markets, are in the range of 0.5 to 0.6. Furthermore, it turns out that even a CRRA below one is difficult to reconcile with these elasticity estimates. Thus, there appears to be an important (additional) anomaly involving individuals' risk-taking behavior in different market settings.

A Fundamental Objection to Tax Equity Norms: A Call for Utilitarianism

Anti-utilitarian norms often are used in assessing tax systems. Two motivations support this practice. First, many believe utilitarianism to be insufficiently egalitarian. Second, utilitarianism does not give independent weight to other equitable principles, notably concerns that reforms may violate horizontal equity or result in rank reversals in the income distribution. This investigation suggests that a policy maker who believes in the Pareto principle -- that any reform preferred by everyone should be adopted - - cannot consistently adhere to any of these anti-utilitarian sentiments. Moreover, the affirmative case for utilitarian tax policy assessment is stronger than is generally appreciated.

Why Measure Inequality?

A large body of literature is devoted to the measurement of income inequality, yet little attention is given to the question, Why measure inequality? However, the reasons for measurement bear importantly on whether and how measurement should be done. Upon examination, normative measures are found to be of questionable value. Descriptive measures, by contrast, may be useful, but the appropriate measure depends on the field of application rather than on general, a priori principles of the sort that are emphasized in the existing measurement literature. Measures of poverty are also considered, and similar conclusions are reached.