I like the idea of marginal tax rates being based on multiples of the average income. So your % marginal tax rate = 100-100/x, where x is how many times greater than average income your income is. So if your income is double the average income, you pay 50% tax on the last dollar you earn, if you earn 3 times, you pay 66%, etc. In practice, you'd probably break the marginal rates up into chunks to make it easier to administer. At some point it would be better for the super-wealthy to help out low income earners than to increase their incomes. And even if they didn't, there would be sufficient tax revenue to do so.
I assume this is not original. Any ideas on names (of authors or of the concept)?
Kieran Latty, on the basis of analysis of intertemporal optimisation, decisions under risk, Fisher's method, analysis of psychometric scales of happiness etc. and a few other methods suggests that the most plausible figure for elasticity of marginal utility with respect to income is 1.3, and that it is hard to get a figure much lower than this:
Additionally, Kieran notes that we must also consider the externalities of income, vis a vis it is likely that high incomes exert a negative relative income effect on others. Hence utilitarian policy should be even more inequality adverse than this suggests. Some will suggest that relative income effects are naught but jealousy and should be discarded- but I pretty comprehensively thwunk that view here:
In a steady state economy, optimum utilitarian tax and transfer policy would be profoundly inequality adverse. My back of the envelope calculations suggest that taking a dollar from someone making 100,000 a year and giving it to someone earning 25,000 a year makes that dollar >16x more valuable. Assuming deadweight loss of taxation is not infeasibly high, a strongly redistributive approach is called for.
This just leaves the question of whether outside a steady state economy high inequality might be justified through economic growth. I'd argue the empirical record is not encouraging for such an approach, but it's debatable I guess and what do I know?
This idea goes well with the growing attention on meeting basic income needs - UBI. Just returned from the AAEA conference and equity issues are on the centre stage. Treating excessively high incomes as an externality and devising a mechanism to redistribute as UBI becomes a viable solution. New US Farm Bill has an extended food and nutrition program and a heavy focus on food support for over 40 million Americans who are food insecure. It is all related to how economics handle values and value trade-offs. I am working to revisit Chapter 3 of my PhD. This thought here is highly complementary.
Readable and comprehensible, apart from the maths. Not good with maths, the forensic stuff , but it s the sense of the piece that offers a resonance.
If the maths indicates a problem involving large scale use of public's money, I want to know also.
It seems if this exposes deliberate lies that only a forensic approach is fail safe. 1 plus 1 can only equal 2. Congrats Prof Quiggin, et all, in a year replete with lies and bogus and illogical un-thinking..
Ecology and "downstream", a perfect example as politicians eagerly hand over precious resources to off shore and local gangstas, always leaving a huge clean up paid for taxpayer dupes conditioned tothink in neo lib terms, ages after the carpetbaggers have fled with the loot.
John I think you were at a lecture in Paris in the mid-nineties by the Nobel Laureate Maurice Allais who argued that his most important SCIENTIFIC contribution was to establish that utility was cardinal and comparable across individuals, and more specifically it was the log function. He then concluded that if one accepts John Stuart Mill's principle of "equal sacrifice" for judging the fairness of the tax system, then the income tax schedule that generates such an equal sacrifice of utility across income-tax payers is a flat tax (that is, one with a constant marginal rate). In his hands, log utility justified flat taxes and established that progressive tax schedule was unfair!
Yes, I remember that now that you mention it. Allais was a fascinating character.
The "equal sacrifice" principle isn't utilitarian, even though JS Mill espoused it. It makes sense if you start from an existing allocation of property rights, and then treat taxation as a way of providing public goods which proportionally enhance the value of those rights. On that basis, everyone should agree on the optimal rate of taxation, or equivalently, the optimal provision of public goods. But utility would be increased by redistribution.
Logarithms may understate matters. A hyperbolic cosecant function (for difference in marginal utility) fits better with hyperbolic (time) discounting in behavioural economics.
last week i took pollen from an australian tree, ficus fraseri, and injected it into the common fig, ficus carica. do you appreciate how strange it is that these two ficus might be closely related enough to hybridize? if i've done enough homework, and the result is viable seed, then i will have created a brand new ficus.
let's imagine that this new ficus is the best of both worlds... it has carica's big delicious fruit and fraseri's resistance to all the problems that plague carica... root knot nematodes, fungal blight, black fig fly and so on.
"the greatest service which can be rendered any country is to add a useful plant to its culture.” - thomas jefferson
dictatorships don't work because one person can't possibly know how useful my new ficus would be for everyone. the same is true for committees. democracy doesn't work because everyone can't initially know about my new ficus. therefore, markets. each person who tastes my new ficus fruit can give me feedback on it, in the form of personal sacrifice.
once you appreciate that markets work because they allow everyone to provide substantial feedback on how usefully i'm using societies limited resources, then you should appreciate just how counter-productive it is to arbitrarily limit or distort this feedback. if society wants to give me a ton of positive feedback, then guess what? there's possibly another 100 species of ficus that can be crossed with carica to create entirely new fig fruits.
"the system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. it requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people." - oskar lange
how many people should hybridize figs? a larger number of people? a small number of people? the market is the only way to get the correct answer. lange didn't understand this. he didn't appreciate that markets work because of the massive amount of substantial feedback they produce. messing with this feedback causes poverty and hinders progress.
I like the idea of marginal tax rates being based on multiples of the average income. So your % marginal tax rate = 100-100/x, where x is how many times greater than average income your income is. So if your income is double the average income, you pay 50% tax on the last dollar you earn, if you earn 3 times, you pay 66%, etc. In practice, you'd probably break the marginal rates up into chunks to make it easier to administer. At some point it would be better for the super-wealthy to help out low income earners than to increase their incomes. And even if they didn't, there would be sufficient tax revenue to do so.
I assume this is not original. Any ideas on names (of authors or of the concept)?
Kieran Latty, on the basis of analysis of intertemporal optimisation, decisions under risk, Fisher's method, analysis of psychometric scales of happiness etc. and a few other methods suggests that the most plausible figure for elasticity of marginal utility with respect to income is 1.3, and that it is hard to get a figure much lower than this:
https://www.academia.edu/1070029/Income_distribution_growth_and_social_welfare_towards_an_economic_solution_to_the_growth_equality_trade_off_problem
Additionally, Kieran notes that we must also consider the externalities of income, vis a vis it is likely that high incomes exert a negative relative income effect on others. Hence utilitarian policy should be even more inequality adverse than this suggests. Some will suggest that relative income effects are naught but jealousy and should be discarded- but I pretty comprehensively thwunk that view here:
https://philosophybear.substack.com/p/what-are-relative-income-effects
Kieran Latty gives a five parameter Atkinson index which includes relative income effects here:
https://www.academia.edu/6099318/A_five_parameter_Atkinson_like_index_featuring_relative_income_effects_with_a_seven_parameter_extension_for_nonlinear_prioritarian_social_welfare_functions
In a steady state economy, optimum utilitarian tax and transfer policy would be profoundly inequality adverse. My back of the envelope calculations suggest that taking a dollar from someone making 100,000 a year and giving it to someone earning 25,000 a year makes that dollar >16x more valuable. Assuming deadweight loss of taxation is not infeasibly high, a strongly redistributive approach is called for.
This just leaves the question of whether outside a steady state economy high inequality might be justified through economic growth. I'd argue the empirical record is not encouraging for such an approach, but it's debatable I guess and what do I know?
This idea goes well with the growing attention on meeting basic income needs - UBI. Just returned from the AAEA conference and equity issues are on the centre stage. Treating excessively high incomes as an externality and devising a mechanism to redistribute as UBI becomes a viable solution. New US Farm Bill has an extended food and nutrition program and a heavy focus on food support for over 40 million Americans who are food insecure. It is all related to how economics handle values and value trade-offs. I am working to revisit Chapter 3 of my PhD. This thought here is highly complementary.
Readable and comprehensible, apart from the maths. Not good with maths, the forensic stuff , but it s the sense of the piece that offers a resonance.
If the maths indicates a problem involving large scale use of public's money, I want to know also.
It seems if this exposes deliberate lies that only a forensic approach is fail safe. 1 plus 1 can only equal 2. Congrats Prof Quiggin, et all, in a year replete with lies and bogus and illogical un-thinking..
Ecology and "downstream", a perfect example as politicians eagerly hand over precious resources to off shore and local gangstas, always leaving a huge clean up paid for taxpayer dupes conditioned tothink in neo lib terms, ages after the carpetbaggers have fled with the loot.
John I think you were at a lecture in Paris in the mid-nineties by the Nobel Laureate Maurice Allais who argued that his most important SCIENTIFIC contribution was to establish that utility was cardinal and comparable across individuals, and more specifically it was the log function. He then concluded that if one accepts John Stuart Mill's principle of "equal sacrifice" for judging the fairness of the tax system, then the income tax schedule that generates such an equal sacrifice of utility across income-tax payers is a flat tax (that is, one with a constant marginal rate). In his hands, log utility justified flat taxes and established that progressive tax schedule was unfair!
Yes, I remember that now that you mention it. Allais was a fascinating character.
The "equal sacrifice" principle isn't utilitarian, even though JS Mill espoused it. It makes sense if you start from an existing allocation of property rights, and then treat taxation as a way of providing public goods which proportionally enhance the value of those rights. On that basis, everyone should agree on the optimal rate of taxation, or equivalently, the optimal provision of public goods. But utility would be increased by redistribution.
Logarithms may understate matters. A hyperbolic cosecant function (for difference in marginal utility) fits better with hyperbolic (time) discounting in behavioural economics.
last week i took pollen from an australian tree, ficus fraseri, and injected it into the common fig, ficus carica. do you appreciate how strange it is that these two ficus might be closely related enough to hybridize? if i've done enough homework, and the result is viable seed, then i will have created a brand new ficus.
let's imagine that this new ficus is the best of both worlds... it has carica's big delicious fruit and fraseri's resistance to all the problems that plague carica... root knot nematodes, fungal blight, black fig fly and so on.
"the greatest service which can be rendered any country is to add a useful plant to its culture.” - thomas jefferson
dictatorships don't work because one person can't possibly know how useful my new ficus would be for everyone. the same is true for committees. democracy doesn't work because everyone can't initially know about my new ficus. therefore, markets. each person who tastes my new ficus fruit can give me feedback on it, in the form of personal sacrifice.
once you appreciate that markets work because they allow everyone to provide substantial feedback on how usefully i'm using societies limited resources, then you should appreciate just how counter-productive it is to arbitrarily limit or distort this feedback. if society wants to give me a ton of positive feedback, then guess what? there's possibly another 100 species of ficus that can be crossed with carica to create entirely new fig fruits.
"the system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. it requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people." - oskar lange
how many people should hybridize figs? a larger number of people? a small number of people? the market is the only way to get the correct answer. lange didn't understand this. he didn't appreciate that markets work because of the massive amount of substantial feedback they produce. messing with this feedback causes poverty and hinders progress.